You are on page 1of 3

1

Econ 1550
Assignment 1 (Part-II)
(Answer all)
Submission Date: 2
nd
Nov, 2011, Wednesday (After Class)

In solving your problem, take the support from reference book and myeconlab (that probably come
from the package of your book).

1) Output and Costs:

1.1) Tony's Pizza's production function is shown in the table above. Tony currently operates
Plant 1. He hires workers at a wage rate of $50 a day and his total fixed cost is $100.
a) Calculate Tony's Pizza's total variable cost and total cost for each output level.
b) Calculate Tony's marginal costs.
c) Calculate the average fixed costs, average variable costs, and average total costs.
d) Draw Tony's marginal, average variable, and average total cost curves in one figure. What is
the relationship between marginal cost and average cost?

Labor
(workers)
Output
(pizzas
per day)
TVC
(dollars
per day)
TC
(dollars
per day)
MC
(dollars
per day)
AFC
(dollars
per day)
AVC
(dollars
per day)
ATC
(dollars
per day)
0 0

1 8

2 18

3 26

4 31

5 34

6 35

2) Perfect Competition:
2.1) Brennan's Farm produces and sells milk. The market for milk is perfectly competitive. The
market price of milk is $2.50 per gallon. The relationship between the farm's output and total
costs is shown in the table below.

a) Draw Brennan's average variable, average total, and marginal cost curves.
b) Use your graphs to find Brennan's profit-maximizing output.
2

c) If Brennan maximizes his profit, how much profit does he make?
d) Should Brennan stay in business? Will other farms with costs the same as Brennan's enter the
milk market? Explain.

Quantity
(gallons
per day)
TC
(dollars
per day)
MC
(dollars
per day)
TVC
(dollars
per day)
AVC
(dollars
per day)
ATC
(dollars
per day)
0 500

100 713 213

200 800 300

300 838 338

400 900 400

500 1,063 563

600 1,400 900

2.2) The following figure shows the cost curves of a profit-maximizing perfectly competitive
firm. If the price equals $7,
a) how much will the firm produce?
b) how much is the firm's average total, average variable, and marginal costs?
c) how much is the firm's total, total variable, and total fixed costs?
d) how much is the firm's total revenue and economic profit?
e) what will happen in this market in the long run?



3

3 Monopoly:
Price
(dollars per
ounce)
Quantity
demanded
(ounces per day)
100 100
200 80
300 60
400 40
500 20
600 0

Quantity
produced
(ounces per
day)
Total cost
(dollars per day)
9 6,000
20 7,200
40 8,800
60 10,800
80 13,200
100 16,000

Anastasia's Gold Mines, a single price monopoly, faces the demand schedule shown in the first
table above and has the cost schedule shown in the second table above.

a) Calculate Anastasia's marginal revenue schedule. In a figure, draw the demand curve and the
marginal revenue curve.
b) Calculate Anastasia's marginal cost and average total cost schedules. In the same figure that
you drew the demand and marginal revenue curves, draw the marginal and the average total cost
curves.
c) What are Anastasia's profit-maximizing output and price? What is Anastasia's economic
profit? Explain your answer.
d) Does Anastasia's Gold Mines use resources efficiently? Explain your answer.



** Note: 1) Thls ls the Asslgnment 1 (Purt-II) (Solve ull the problem)
2) You need to select 2 urtlcles for revlew whlch ls Asslgnment 1 (Purt-I)
3) You need to submlt both purt (I &II) wlthln the glven tlme.

You might also like