Question

# 1) Xavier opens up a lemonade stand for two hours. He spends \$10 for ingredients and...

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:

\$10                   0

8                   1

6                   3

4                   6

2                   10

0                   15

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?

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?

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.