Question

1.  Casey is an expert poker player and can make $35 an hour playing poker online. On Saturday Casey goes to a local tournament with a $15 entry fee. He plays for four hours and wins first place, taking home the $150 prize. Did Casey make an economic profit at the tournament?

2. A computer-products retailer purchases laser printers from a manufacturer at a price of $500 per printer. During the year the retailer will try to sell the printers at a price higher than $500 but may not be able to sell all of the printers. At the end of the year, the manufacturer will pay the retailer 30% of the original price for any unsold laser printers. No one other than the manufacturer would be willing to buy these unsold printers at the end of the year.

a. At the beginning of the year, before the retailer has purchased any printers, what is the opportunity cost of laser printers? (I’m looking for a $$ value here.)

b. After the retailer has purchased the laser printers, what is the opportunity cost associated with selling a laser printer to a prospective customer? Assume that if this customer does not buy the printer, it will be unsold at the end of the year. (Again, I’m looking for a $$ value.)

c. Suppose that at the end of the year, the retailer still has a large inventory of unsold printers. The retailer has set a retail price of $1,200 per printer. A new line of printers is due out soon, and it is unlikely that many more old printers will be sold at this price. The marketing manager of the retail chain argues that the chain should cut the retail price by $1,000 and sell the laser printers at $200 each. The general manager of the chain strongly disagrees, pointing out that at $200 each, the retailer would “lose” $300 on each printer it sells. is the general manager’s argument correct?

3. A firm’s total cost curve is TC = 40Q – 10Q² + Q³.

a. What are the equations for Marginal Cost and Average Total Cost?

b. What is the minimum efficient scale?

c. Over what range of output does the production function exhibit economies of scale, and over what range does it exhibit diseconomies of scale?

Stu owns an ice cream parlor that is usually closed during the winter months. This winter, however, Stu is considering opening his business in February instead of March. If Stu opens his store in February, he will earn total revenue of $4,000 for the month, while incurring variable costs of $3,500 and fixed costs of $1,500. If the store remains closed during February, Stu will earn no revenues and incur fixed costs of $1,500. What should Stu do?

Select one:

a. Stu should keep the ice cream parlor closed in February because he would lose $1,000 if he opens.

b. Stu should keep the ice cream parlor closed in February because the $500 of operating profit is insufficient to cover the $1,500 of fixed costs.

c. Stu should open the ice cream parlor in February because the $4,000 of total revenue exceeds the $1,500 of fixed costs.

d. Stu should open the ice cream parlor in February because the $4,000 of total revenue exceeds the $3,500 of variable costs

The perfectly competitive firm's short-run supply curve is:

Select one:

a. the portion of its marginal cost curve that lies above average variable cost.

b. the portion of its marginal cost curve that lies above average total cost.

c. its average variable cost curve that lies above marginal revenue.

d. its average total cost curve that lies above marginal revenue.

Suppose a perfectly competitive industry has 300 firms, and the short-run supply curve for each firm is given by Q = 2P. What is the short-run industry supply curve?

Select one:

a. Q^S = 150P

b. Q^S = 600

c. Q^S = 600P

d. Q^S = 300 + 2P

Answer 1

Question 1

Amount of prize won = $150

Entry fee = $15

Casey can make $35 an hour playing poker online.

He has spent four hours at the tournament.

So, he lost an opportunity to make ($35 * 4) $140 playing online poker.

Calculate economic profit -

Economic profit = Amount of prize won - Entry fee - Opportunity cost

Economic profit = $150 - $15 - $140 = -$5

Negative economic profit implies the economic loss.

So,

Casey is not making an economic profit at the tournament.

In fact, he is having an economic loss of $5 at the tournament.