Kaplan AB224 -Unit 8 Assignment Break–even Price

Unit 8 AB224 | Microeconomics Unit 8 Assignment: Break–even Price
and Shut–down Price
Name:
Course Number and Section: AB224–0X
Date:
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In this Assignment, you will be assessed on the following outcomes:
AB224-3: Examine how changes in the cost of production affect pricing and production
quantity decisions of a firm in a perfectly competitive market.
GEL-8.5: Apply critical thinking to the field of study. Assignment
In this Assignment, you will define and calculate the remaining six major cost elements
of a business, when given the Total Costs and the Quantity Produced, as well as to use
the computed costs to determine a minimum cost output level for that business. In
addition, you will compute both the break-even price and the shut-down price for a
1 of 7 Unit 8 AB224 | Microeconomics hypothetical business in a perfectly competitive market, and determine if that business
would incur an economic profit at various market prices, and should the firm continue to
produce at each of those price levels.
Questions
Table 2.a. shows an LED light bulb manufacturer’s total cost of producing LED light
bulbs.
Table 2.a.
Cases of LED
light bulbs
produced in an
hour Total Cost 0
10
20
30
40
50
60
70
80
90 $4,500
$4,900
$5,100
$5,300
$5,400
$5,700
$6,700
$7,900
$9,700
$11,800 1. What is this manufacturer’s fixed cost? Explain why. 2. Assuming that you only know the Total Costs (TC) (as is shown in the Table 2.a.
above) explain how you would calculate each of the following:
a. Variable Cost (VC); b. Average Variable Cost (AVC); 2 of 7 Unit 8 AB224 | Microeconomics c. Average Total Cost (ATC); d. Average Fixed Cost (AFC); and, e. Marginal Costs (of a single case). 3. In Table 3.a., for each level of output, insert into the table the values for:
a.
b.
c.
d. the Variable Cost (VC);
the Average Variable Cost (AVC);
the Average Total Cost (ATC); and,
the Average Fixed Cost (AFC).
Table 3.a.
Cases of
LED light
bulbs
produced
in an
hour Total
Cost Variable
Costs
a. 0
10
20
30
40
50
60
70
80
90 $4,500
$4,900
$5,100
$5,300
$5,400
$5,700
$6,700
$7,900
$9,700
$11,800 Average
Variable
Costs Average
Total
Costs Average
Fixed
Cost b.
n/a c.
n/a d.
n/a e. Given the information you computed in Table 3.a., what is the minimum cost
output Level? Explain why.
3 of 7 Unit 8 AB224 | Microeconomics 4. Brenda Smith operates her own farm, raising chickens and producing eggs. She
sells her eggs at the local farmers’ market, where there are several other egg
producers’ also selling eggs by the dozen. (Brenda operates in a perfectly
competitive market in which she is a “price taker.”) In order to make sure she does
not lose money on selling eggs, she does an analysis of her costs for producing
eggs as shown on Table 4.a.
Table 4.a. Dozens
of eggs Fixed
Cost Total
Cost Variable
Costs Average
Variable
Costs per
dozen Average
Total
Costs per
dozen 0
10
20
30
40
50
60
70
80
90 $3.35
$3.35
$3.35
$3.35
$3.35
$3.35
$3.35
$3.35
$3.35
$3.35 $3.35
$10.50
$16.40
$23.10
$30.00
$36.50
$48.00
$64.40
$80.00
$135.00 n/a n/a n/a $7.15
$13.05
$19.75
$26.65
$33.15
$44.65
$61.05
$76.65
$131.65 $0.72
$0.65
$0.66
$0.67
$0.66
$0.74
$0.87
$0.96
$1.46 $1.05
$0.82
$0.77
$0.75
$0.73
$0.80
$0.92
$1.00
$1.50 a. What is Brenda’s break-even price for a dozen of eggs? Explain how you
found that answer. b. What is Brenda’s shut-down price for a dozen of eggs? Explain how you
found that answer. 4 of 7 Unit 8 AB224 | Microeconomics c. If the market price of a dozen eggs at the local farmers’ market is $1.45 per
dozen, will Brenda make an economic profit? Explain how you determined
your answer. d. If the market price of a dozen eggs at the local farmers’ market is $1.45 per
dozen, should Brenda continue producing eggs in the short run? Explain
how you determined your answer. e. If the market price of a dozen eggs at the local farmers’ market is 72 cents
per dozen, will Brenda make an economic profit? Explain how you
determined your answer. f. If the market price of a dozen eggs at the local farmers’ market is 72 cents
per dozen, should Brenda continue producing eggs in the short run?
Explain how you determined your answer. g. If the market price of a dozen eggs at the local farmers’ market is 64 cents
per dozen, will Brenda make an economic profit? Explain how you
determined your answer. h. If the market price of a dozen eggs at the local farmers’ market is 64 cents
per dozen, should Brenda continue producing eggs in the short run?
Explain how you determined your answer. 5 of 7 Unit 8 AB224 | Microeconomics -------------------------------------------References: Unit 8 Assignment: Break–even Price and Shut–down Price Grading Rubric:
Content
Full Assignment
Overall Writing:
Correct coversheet information at the top of 1st page
APA format for answers
Correct citations
Standard English no errors
At least one, or more, references Percent
Possible
100% Points
Possible
80 20% 16 Answers: provides complete information
demonstrating analysis and critical thinking:
80%
Individual Questions:
1. Calculate this manufacturer’s fixed cost
2. a.–d. Define how this manufacturer’s variable cost,
average variable cost, average total cost, average
fixed cost, and marginal cost are calculated.
3. a.–d. Compute this manufacturer's variable cost,
average variable cost, average total cost, and
average fixed cost
3. e. Determine this manufacturer's minimum cost
output level and explain.
4. a. – Brenda's break-even price?
4. b. – Brenda's shut-down price?
4. c. – Any economic profit at $1.45 per dozen?
4. d. – Continue producing at $1.45 per dozen?
4. e. – Any economic profit at $0.72 per dozen?
4. f. – Continue producing at $0.72 per dozen?
4. g. – Any economic profit at $0.64 per dozen?
4. h. – Continue producing at $0.64 per dozen?
Sub-total for Individual Questions: 5%
3%
3%
4%
5% 4.00
2.40
2.40
3.20
4.00
64 5% 4.00 9% 7.20 9% 7.20 6%
8%
8%
5%
6%
6%
6%
6%
6%
80% 4.80
6.40
6.40
4.00
4.80
4.80
4.80
4.80
4.80
64 6 of 7