Question

1) Xavier opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor’s lawn for $40.

What is Xavier’s accounting profit?

What is Xavier’s economic profit?

2) A commercial fisherman notices the following relationship between hours spent fishing and the quantity of fish caught:

Hours Quantity of fish (in pounds)

0

10

18

24

28

30

What is the marginal product of increasing hours from 3 to 4?

If the fisherman has a fixed cost of $10 and a cost of $10 per hour, what is the average cost of catching 30 pounds of fish?

3)A profit-maximizing firm in a PERFECTLY COMPETITIVE MARKET is currently producing 100 units of output. It has average revenue of $10, average total cost of $8 and fixed cost of $200.

What is the firm’s profit?

What is its marginal cost?

What is its average variable cost?

1) You and Mary have made a documentary movie about the URI basketball team. You have decided to make the movie available on the Internet at a price per download, and you can act as a single-price monopolist. Each time the movie is downloaded your Internet service provider charges you a service fee of $4. You have calculated your firm’s demand condition as follows:

Price of download Quantity of downloads demanded

$10 0

8 1

6 3

4 6

2 10

0 15

[Hint: For example you will charge $2 per download if your customers buy 10 downloads]

**You want to maximize your profit.**

What price will you charge?

What quantity would be sold?

5. What is the value of profit in the long run equilibrium of a firm in a monopolistically competitive market?

Answer_____________________________________________

6. Below is your production function per day for your frozen yogurt store. The labor market equilibrium wage for a worker is $80 per day. Each cup of frozen yogurt sells for $2.

Quantity of workers Quantity of yogurt (cups)

0

110

200

270

300

320

330

**You are a profit maximizer:**

a. How many workers should you employ?

Answer #1

1.**Accounting profits** include monetary costs a
fir pays out and the revenue a firm receives.

**Accounting profit** = (Sell how much worth of
lemonades - Spending on ingredients)

= $(60-10)= **$ 50.**

**Economic Profit** is the monetary costs and
opportunity costs a firm pays and the revenue firm receives.

This implies , Economic profit = Accounting profit - opportunity cost

**Economic profit**= $( 50 -40)= **$
10.**

2.

Hours | Quantity of fish | FC =$10 | VC = $(10)(hours) | TC=FC+VC | MP=(change in Q)/(change in hours) | AC =TC/Q |

0 | 0 | 10 | - | 10 | - | - |

1 | 10 | 10 | 10 | 20 | 10 | 2 |

2 | 18 | 10 | 20 | 30 | 8 | 1.67 |

3 | 24 | 10 | 30 | 40 | 6 | 1.67 |

4 | 28 | 10 | 40 | 50 | 4 | 1.78 |

5 | 30 | 10 | 50 | 60 | 2 | 2 |

(a) Marginal product of increasing from 3 to 4 hours = **4
pounds of fish.**

(b) Average cost of of catching 30 pounds of fish =
**$2.**

1-Suppose in one year Leo's Lemonade Stand sells 5,000 cups of
lemonade at a price of $0.25 per cup. Leo incurs the following
costs for the year:
cups: $40
sugar: $20
lemons: $150
water: $75
wages for Linda (the friend Leo hires to help him): $400
Recall Leo also uses $100 from his savings account to buy materials
to build the stand. He forgoes $5 in interest income that he could
have earned if he had left the money in...

You decide to set-up a lemonade stand outside AT&T Park
before a Giant’s game. You conduct extensive market research and
discover that if you charge $1 / glass, you will sell 10,000
glasses; if you charge $6 / glass, you will sell 5,000
glasses.
At the beginning of the season, you purchased all of the
equipment you need (the stand, pitchers, mixers, etc.) for $500.
This equipment has no resale value. You estimate that each glass of
lemonade will require...

1. Suppose a competitive firm previously set its price at $15
per unit to maximize its profit, which had been positive. Then the
market price falls to $12 and the firm adjusts in order to maximize
its profits at the decreased price. After these adjustments what
can we conclude about the firm’s quantity of output, average total
cost, and marginal revenue in terms of being higher, lower, or the
same as before?
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Problem 1
Bill can produce either tables or
chairs. Bill can work up to 10 hours a day. His production
possibilities are given in the table below:
Tables
Chairs
0
100
10
80
20
60
30
40
40
20
50
0
Construct the production possibilities frontier (PPF) for Bill.
Put tables on the Horizontal axis and chairs on the vertical
axis.
What is Bill’s opportunity cost of producing one additional
table?
What is Bill’s opportunity cost of producing one additional...

Problem 3 [24 marks] A competitive firm uses two inputs,
capital (?) and labour (?), to produce one output, (?). The price
of capital, ??, is $1 per unit and the price of labor, ??, is $1
per unit. The firm operates in competitive markets for outputs and
inputs, so takes the prices as given. The production function is
?(?,?) = 3?0.25?0.25. The maximum amount of output produced for a
given amount of inputs is ? = ?(?,?) units.
a)...

You open a perfectly competitive firm making sandwiches, with
the given quantity and total cost schedules. Fill in the missing
columns, and then determine your level of output and amount of
profit you will earn if the price of sandwiches is a) $7; b) $5.80;
c) $4.20; and d) $2.
Quantity
Total Costs
Variable Costs
Average Total Costs
Average Variable Costs
Marginal Costs
0
30
----
----
----
5
45
10
55
15
76
20
105
25
140
30
185...

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...

1)Alexandria has her
own lawn service. It takes her two hours to cut a lawn and she cuts
1,000 lawns per year. She uses solar-powered equipment (truck and
mower) that will last forever – and can be sold at any time for
$30,000. Alexandria could earn $12 per hour as a swim instructor.
The interest rate is 10 percent.
Given her current level of output, compute her marginal cost and
average cost of cutting lawns.
Suppose she decrease the number...

1.Suppose you are running your own flower delivery business
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information (per year): total revenues from sales are $260,000,
labor costs are $85,000, rent is $20,000, materials are $33,000,
vehicle related costs (fuel, insurance, maintenance) are $10,000
and utilities are $7,000. You own the delivery van and could rent
it out for $6,000 per year if you weren’t using it to run your own
business. You have a standing offer to...

Assume that consumers view tax preparation services as
undifferentiated among producers, and that there are hundreds of
companies offering tax preparation in a given market. The current
market equilibrium price is $120. Jojo’s Tax Service has a daily,
short-run total cost given by TC = 100 + 4Q2. Answer the
following questions:
How many tax returns should Jojo prepare each day if her goal is
to maximize profits?
How much will she earn in profit each day?
A perfectly competitive...

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