Question

1. Use the data that is posted below to answer the following questions. If your answer has units to it, then please state those units.

Production Options	Sugar beets (tons)	Wheat  (tons)
A	200	0
B	180	20
C	140	40
D	80	60
E	0	80

a) Graph Production Possibilities Frontier (Curve) for Sugar Beets and Wheat. Put sugar beets on the vertical axis and label that axis Sugar Beets and put wheat on the horizontal axis and label that axis Wheat.

b) If we are producing 140 tons of beets and 20 tons of wheat, what is the cost of producing 40 more tons of beets?

c) If we are producing 140 tons of beets and 40 tons of wheat, what is the cost of producing 40 more tons of beets?

d) Explain why your answers for (b) and (c) above are different. After all in both questions we increased the production of beets by the same 40 tons.

e) What can we say about the economy currently producing 140 tons of sugar beets and 60 tons of wheat given no change in resources and technology?

f) Which production option above (A, B, C, D or E) is the best point for this economy to be at? Explain your answer.

2.The following table represents short run cost-revenue information (in dollars) for a firm in a competitive market.

Q	P	TR	MR	MC	TC	Total Profit
0		0	N/A	N/A	1000
1		200			1200
2		400			1340
3		600		60
4		800			1420
5		1000			1440
6		1200		60
7		1400		80	1580
8		1600		140
9		1800
10		2000

(a) Fill in all the blanks above using the following information: The Market Price is $200 per unit of output, the VC of producing 9 units of output is $920, and the ATC of producing 10 units of output is $220

(b) Where does diminishing returns start? Explain your answer.

(c) What is the Fixed Costs for this firm? Explain your answer.

(d) In the Short Run, if this firm would go into production, determine the profit maximizing (or loss minimizing) level of output and profit amount.

(e) In the Short Run, if this firm would instead shutdown without going into production, determine its production amount and profit amount.

(f) Please determine the best course of action for this firm in the Short Run. Please explain your reasoning.

(g) Based on the data above, in the Long Run, explain what this firm should do and why the firm should pick this course of action.

Answer 1