Question

Nimbus, Inc. makes brooms and then sells them door-to-door. The table below demonstrates the relationship between the number of workers and Nimbus’s output in a given day. The firm experiences fixed costs of $200, and its variable cost (workers) is $100 per worker per day. The broom industry is perfectly competitive.

Fill in the table below:

Number of Workers	Brooms (Total Output) Q	Marginal Product MP	Fixed Cost FC	Variable Cost VC	Total Cost TC	Avg Fixed Cost AFC	Avg Variable Cost AVC	Avg Total Cost ATC	Marginal Cost MC	Marginal Revenue MR
0	0
1	20
2	50
3	90
4	115
5	135
6	145

Graph the AVC, ATC and MC curves of this firm.

What is the efficient level of output for this firm? How do you know?

What is the profit maximizing level of output for this firm when the market price is $4? How do you know?

Show the profit maximizing level of output for this firm when the market price is $4 on your graph.

a.   What is ATC at that level of output?

b.Calculate the firm’s economic profits (or losses) at its profit-maximizing level of output.

c.Given your answer to (c), what should the firm do in the Long Run?

d.What is AVC at the profit maximizing level of output?

e.Given your answer to (d) and using the Shut-down Rule, what should the firm do in the Short Run?

f.If the firm were to shut down immediately, what would their economic loss be?

Describe and show graphically what will happen in the Long Run in the broom industry with a market price of $4?

What is the long run equilibrium market price for brooms? How do you know?

Answer 1