# Economics 384 Homework
#4 Name
________________________

30 Points

**1. 8 Points**

** Assume
you own a computer shop and that you sell 2,000 computers a year. The selling
price of the computers is $900 in a perfectly competitive market. Assume your ATC is $1,000 and that your AVC
is $800 while your AFC is $200. Should
you continue to produce in the short run or shutdown? Explain your answer including how much money
you lose if you produce vs. how much you lose if you shutdown.**

**2. 5 Points**

**Assume a self-service gas station has the following
marginal cost function and that gasoline sells for $3.00 per gallon.**

**MC = $1.25 +.00002Q
**(where Q is the number of gallons of gasoline
sold.)

Assume the only variable
cost for this firm is the gasoline. What
is the amount of gasoline this firm should sell in order to maximize
profits? Show calculations.

**3. 5 Points**

**Next assume the gas station’s marginal cost function has
changed as shown below, and the price of gasoline has decreased to $2.50 per
gallon.**

**MC = $1.50 +.00002Q
(**where Q is the
number of gallons of gasoline sold.)

Assume the only variable
cost for this firm is the gasoline. Calculate
the amount of gasoline this firm should sell in order to maximize profits? Show
Calculations.

**Continued on backside…**

**Page 2**

**4. 12 Points**

** Beth’s
Lawn Mowing Service is a small business that acts as a price taker;
therefore: MR = P**

**The prevailing market price of lawn mowing is**** $20 per acre.**

**Her total and marginal cost functions are:**

**TC = .1Q**^{2}**+ 10Q + 50**

**MC =
.2Q + 10**

a)
How many acres should Beth choose to mow if she
wants to maximize profits? Show
calculations.

b)
Calculate the amount of profit for this period. Show calculations.