1.Consider a Ratu's perfectly competitive firm produces cabbage that is sold in bundles. The current market price of cabbage $5 a bundle. Ratu's total and marginal cost curves, where Q is measured in number of bundles per year, are: TC = 1000 + 0.002Q2 MC = 0.004Q TR = P x Q

a. Calculate Ratu's profit maximizing quantity. Is the firm earning a profit?

b. Calculate the profit or loss the firm is making.

c. What is the fixed cost for this company?

d. Analyze Ratu's position in terms of the shutdown condition. Should Viti operate or shut down in the short-run? And in the long-run?

2. Bob produces DVD movies for sale, which requires a building and a machine that copies the original movie onto a DVD. Bob rents a building for $30,000 per month and rents a machine for $20,000 a month. Those are his fixed costs. His variable cost per month is given in the accompanying table.

a. Calculate Bob's average variable cost, average total cost, and marginal cost for each quantity of output. Quantity of DVDs VC MC of DVD AVC of DVD ATC of DVD 0 $0 - - - 1,000 $5,000 2,000 $8,000 3,000 $9,000 4,000 $14,000 5,000 $20,000 6,000 $33,000 7,000 $49,000 8,000 $72,000 9,000 $99,000 10,000 $150,000 Quantity of DVDs VC 0 $0 1000 $5000 2000 $8000 3000 $9000 4000 $14000 5000 $20000

b. There is free entry into the industry, and anyone who enters will face the same costs as Bob. Suppose that currently the price of a DVD is $25. What will Bob's profit be? Is this a long-run equilibrium? If not, what will the price of DVD movies be in the long run?

3. A profit-maximizing business incurs an economic loss of $10,000 per year. Its fixed cost is $15,000 per year. Should it produce or shut down in the short run? Should it stay in the industry or exit in the long run?