davenport econ625 Problem Set 4

• Question 1

8 out of 8 points

Based on your knowledge of the definition of the various measures of short-run cost, complete this table.

Q TC TFC TVC AC AFC AVC MC

0 120 [a] [b] - - - -

1 [c] [d] [e] 265 [f] [g] [h]

• Question 2

3 out of 3 points

Questions 2 through 4 refer to the following cost equation: Total Cost (TC) = 160Q -10Q2 + 1.2Q3.

What is Total Cost when the Quantity is 20?

• Question 3

2 out of 2 points

Consider the Total Cost equation in the previous question. Which of the following represents the equation for Average Cost (AC)?

• Question 4

0 out of 2 points

Consider the equation in question 2. What is the Marginal Cost of producing the 21st unit? (Hint: Begin by calculating TC at 20 and at 21.) Round to the nearest whole number.

• Question 5

4 out of 4 points

Questions 5 through 7 refer to the following graphical representation of a short-run situation faced by a perfectly competitive firm.

Is this a good market for this firm to be in?

• Question 6

0 out of 3 points

Refer to question 5. Which of the following describes the firm’s situation in the short run?

• Question 7

0 out of 3 points

Refer to question 5. What do you expect to happen in the long run?

Selected Answer:

New firms will enter; short-run profits will disappear

• Question 8

3 out of 3 points

Questions 8 through12 refer to the following scenario: The Automotive Supply Company has a small plant that produces speedometers exclusively. Its annual fixed costs are $30,000, and its variable costs are $10/unit. It can sell a speedometer for $25.

How many speedometers must the company sell to break even?

• Question 9

3 out of 3 points

Refer to question 8. What is the break-even revenue? Enter your answer as a whole number without a dollar sign.

• Question 10

3 out of 3 points

Refer to question 8. The company sold 3,000 units last year. What was its profit?

• Question 11

3 out of 3 points

Refer to question 8. Next year’s fixed costs are expected to rise to $37,500. What will be the break-even quantity?

• Question 12

0 out of 3 points

If the company will sell the number of units obtained in the previous question (number 11) and wants to maintain the same profit as last year, what will its new price need to be? Enter your answer as a whole number without the dollar sign.