The table below contains some incomplete information about the costs for a firm. Fill in the missing
Question:
The table below contains some incomplete information about the costs for a firm. Fill in the missing values and explain how you arrived at your answers.
Output | Total Cost | Fixed Cost | Variable Cost | Marginal Cost |
0 | 12 | 0 | - | |
1 | 5 | 5 | ||
2 | 20 | 8 | 3 | |
3 | 26 | 14 | ||
4 | 9 | |||
5 | 46 | 34 |
[II] Sarah owns a small factory that produces basketballs. The fixed cost of operation per day is $10. The table below shows among others items the total variable cost incurred at alternative levels of output per day. Use this information to answer the questions that follow.
Output per day | Total Fixed Cost | Total Variable Cost | Total Cost | Average Cost | Marginal Cost |
0 | 0 | ||||
1 | 5 | ||||
2 | 7.50 | ||||
3 | 12.50 | ||||
4 | 20.00 | ||||
5 | 30.00 | ||||
6 | 42.50 | ||||
7 | 57.50 | ||||
8 | 75.00 | ||||
9 | 95.00 |
- Fill in the blank spaces in the table.
- Does this production show diminishing returns? How do you know?
- If the market price of basketballs is fixed at $12.51 per ball, how many basketballs should Sarah produce in order to maximize profits? What if the price were $10.01, $17.51?
- Sketch a supply curve for Sarah.
- What would happen to the supply curve if fixed cost were to drop to $5 per day?
[III] Consider a firm that is in perfection competition. The market price is currently $15.01 and the firm has fixed cost of $100. Based upon this information and other information in the table below complete all the missing parts to the table and determine what output level the firm should produce to maximize profits.
Output | Total Revenue | Marginal Revenue | Total Variable Cost | Total Cost | Marginal Cost | Profits |
1 | 12 | |||||
2 | 22 | |||||
3 | 30 | |||||
4 | 40 | |||||
5 | 52 | |||||
6 | 65 | |||||
7 | 80 | |||||
8 | 98 |
[IV] Assume we have a monopoly producer of a good. Various points on the market demand curve for that good are given in the table below. Answer the questions that follow on the basis of this information
Price | Quantity | Total Revenue | Marginal Revenue |
$80 | 10 | NA | |
78 | 11 | ||
76 | 12 | ||
74 | 13 | ||
72 | 14 | ||
70 | 15 | ||
68 | 16 | ||
66 | 17 |
- Fill in the column to find the total revenue that would be earned if each of the prices shown were to be charged by the monopolist.
- Calculate and fill in column four to show the marginal revenue that would be earned if each of the prices shown were to be charged by the monopolist.
- Draw a freehand sketch with a price on the vertical axis and quantity on the horizontal axis using the data in the table.
- On the same graph in (3) above add a line that shows marginal revenue on the vertical axis and quantity of the horizontal axis using the data in the table.
- For each unit how does marginal revenue compare to the price? What is the reason for this relationship?
- Suppose this monopolist has no fixed cost and a constant marginal cost of $42 a unit. How many units should it produce to maximize profit? What will be the number of profits?
- Show that at the output level you choose the monopolist’s profit would be higher than if the monopolist had chosen to produce one more unit or one less unit of the good.
[V] Briefly explain as if to a layperson why economists believe that monopolies are not desirable.
Accounting for Decision Making and Control
ISBN: 978-1259564550
9th edition
Authors: Jerold Zimmerman