4. Short-term Firm Behavior in Perfect Competition This question builds off the scenario from question 3, but looks mostly at the short-term behavior of Best Shoes. Again, the firm operates in a perfectly competitive market. It faces the price of 40.692 USD for its product. For questions 4.a through 4.d it's fine to just derive your answer from eyeballing the chart you create in 4.a. Remember to show your work for calculations you perform. Table 4 shows the short-term cost data for Best Shoes that you've calculated using the data from Table 3. TITI Table 4: Short-Term Cost Data for Best Shoes Short-Term Costs for Average Variable Quantity the Firm Cost for the Firm Marginal Costs 50 1,737.8 34.76 150 4,882.3 32.55 31.445 250 7,740.2 30.96 28.579 350 10,513.1 30.04 27.729 450 13,519.7 30.04 30.066 550 16,532.1 30.06 30.124 650 19,556.2 30.09 30.241 750 22,979.1 30.64 34.229 850 27,048.3 31.82 40.692 950 32,067 33.75 50.187 1,050 38,450.6 63.836 Technical (non-essential) Note: These data for the short term were calculated with labor- related diseconomies of scale factored in as short-term costs. Although diseconomies of scale is a concept applied to the long-term evolution of the firm, the COO argues that diseconomies 36.62 of scale due to hiring labor occurs regardless of whether capital is fixed or not and need to be incorporated into your short-term analysis. She is the client and this approach makes sense as an adaptation of the concepts you learned in class, so you do what she says. 4.a Respond to the following: (1) Graph marginal cost as a function of quantity and marginal revenue as a function of quantity. (2) Calculate the quantity the firm should produce in order to maximize its profit. Calculate the profit per unit at this quantity. Remember to show your work. 4.b Respond to the following: (1) How much should the firm produce if demand for shoes increases and the price goes up to 60.00 USD? (2) Calculate the firm's profit (or loss), at this quantity? (3) Depict this in a chart. 4. Respond to the following: (1) How much should the firm produce if demand for shoes decreases and the price goes down to 10.00 USD? (2) What is the firm's profit (or loss), at this quantity? 4.d The fixed cost for Best Shoes is zero. This means the average total cost curve is the same thing as the average variable cost curve. Respond to the following: (1) What would the price be at the shutdown point for the firm? 4.e in your chart in 4.a there should be a section where the average total cost curve and the marginal costs curve are approximately flat and overlap between the interval Q 450 and Q 650. Now assume that the marginal cost curve and average variable cost curves are perfectly flat between Q 450 and Q - 650 and overlap perfectly over that interval. Respond the following: (1) What will the production level be for the firm at its shutdown point if this were the case? (2) Explain why? 4.f Now, let's consider briefly the long-run outcome for Best Shoes. Respond to the following: (1) What is the best possible profit for Best Shoes in the long-run competitive equilibrium in the market for these shoes? (2) Why? 3. Managing a Business in the Long Run You are on your second assignment for Bluefield Consulting and you are analyzing a business called "Best Shoes" which produces shoes in a factory using various types of capital and labor. It operates in a perfectly competitive market with many other firms producing similar shoes to the ones it produces. Again, you are employed to help the firm better understand its costs and how it should operate in the market. To help you out, the Chief Operations Officer (COO) of Best Shoes provides you with production data from the firm, which is contained in Table 3. 3.a Respond to the following: (1) What cost measures (quality control costs, workplace theft monitoring, labor costs, etc.) in Table 3 are considered "diseconomies of scale"? You can either make an empirical argument by graphing out the data and explaining why the line or curve it forms represents a diseconomy of scale, or you can make a rhetorical argument based on what you know about these concepts (or both!). 3.b Respond to the following: (1) What is the approximate minimum efficient level of production for Best Shoes? Make sure to explain how you came to your answer. (2) Why would the Coo want to know this? Quantity Quality Control Costs Variable Capital Costs Total Costs 50 150 250 350 450 550 650 750 850 950 1,050 2 2.6 3.6 5.4 8.6 14.6 26.3 50 100 210 Table 3: Long-Run Cost and Production Data for Best Shoes Workplace Theft Estimated Labor Costs Monitoring Legal Services for Productivity due to Employee Morale Labor Relations 0.5 1.731.8 1.5 0.7 4,875 2 2 1 7,730.8 2 2.8 1.5 10.500 2 4.2 2.4 13,500 2 6.7 4.1 16,500 2 11.4 7.4 19,500 2 20.5 14.1 22,875 1 39 26,842.1 0 78 59.2 31,635 -1 163.8 130.2 37,500 -2 360.4 1.154.5 3.250 5.153.8 7,000 9,000 11,000 13,000 15,250 17894.7 21,090 24,900 2,892.30 8,132.30 12,894.00 17.513.10 22,519.70 27,532.10 32,556,20 38,229.10 44,943.00 53,157.00 63,350.60 28.2 462 4. Short-term Firm Behavior in Perfect Competition This question builds off the scenario from question 3, but looks mostly at the short-term behavior of Best Shoes. Again, the firm operates in a perfectly competitive market. It faces the price of 40.692 USD for its product. For questions 4.a through 4.d it's fine to just derive your answer from eyeballing the chart you create in 4.a. Remember to show your work for calculations you perform. Table 4 shows the short-term cost data for Best Shoes that you've calculated using the data from Table 3. TITI Table 4: Short-Term Cost Data for Best Shoes Short-Term Costs for Average Variable Quantity the Firm Cost for the Firm Marginal Costs 50 1,737.8 34.76 150 4,882.3 32.55 31.445 250 7,740.2 30.96 28.579 350 10,513.1 30.04 27.729 450 13,519.7 30.04 30.066 550 16,532.1 30.06 30.124 650 19,556.2 30.09 30.241 750 22,979.1 30.64 34.229 850 27,048.3 31.82 40.692 950 32,067 33.75 50.187 1,050 38,450.6 63.836 Technical (non-essential) Note: These data for the short term were calculated with labor- related diseconomies of scale factored in as short-term costs. Although diseconomies of scale is a concept applied to the long-term evolution of the firm, the COO argues that diseconomies 36.62 of scale due to hiring labor occurs regardless of whether capital is fixed or not and need to be incorporated into your short-term analysis. She is the client and this approach makes sense as an adaptation of the concepts you learned in class, so you do what she says. 4.a Respond to the following: (1) Graph marginal cost as a function of quantity and marginal revenue as a function of quantity. (2) Calculate the quantity the firm should produce in order to maximize its profit. Calculate the profit per unit at this quantity. Remember to show your work. 4.b Respond to the following: (1) How much should the firm produce if demand for shoes increases and the price goes up to 60.00 USD? (2) Calculate the firm's profit (or loss), at this quantity? (3) Depict this in a chart. 4. Respond to the following: (1) How much should the firm produce if demand for shoes decreases and the price goes down to 10.00 USD? (2) What is the firm's profit (or loss), at this quantity? 4.d The fixed cost for Best Shoes is zero. This means the average total cost curve is the same thing as the average variable cost curve. Respond to the following: (1) What would the price be at the shutdown point for the firm? 4.e in your chart in 4.a there should be a section where the average total cost curve and the marginal costs curve are approximately flat and overlap between the interval Q 450 and Q 650. Now assume that the marginal cost curve and average variable cost curves are perfectly flat between Q 450 and Q - 650 and overlap perfectly over that interval. Respond the following: (1) What will the production level be for the firm at its shutdown point if this were the case? (2) Explain why? 4.f Now, let's consider briefly the long-run outcome for Best Shoes. Respond to the following: (1) What is the best possible profit for Best Shoes in the long-run competitive equilibrium in the market for these shoes? (2) Why? 3. Managing a Business in the Long Run You are on your second assignment for Bluefield Consulting and you are analyzing a business called "Best Shoes" which produces shoes in a factory using various types of capital and labor. It operates in a perfectly competitive market with many other firms producing similar shoes to the ones it produces. Again, you are employed to help the firm better understand its costs and how it should operate in the market. To help you out, the Chief Operations Officer (COO) of Best Shoes provides you with production data from the firm, which is contained in Table 3. 3.a Respond to the following: (1) What cost measures (quality control costs, workplace theft monitoring, labor costs, etc.) in Table 3 are considered "diseconomies of scale"? You can either make an empirical argument by graphing out the data and explaining why the line or curve it forms represents a diseconomy of scale, or you can make a rhetorical argument based on what you know about these concepts (or both!). 3.b Respond to the following: (1) What is the approximate minimum efficient level of production for Best Shoes? Make sure to explain how you came to your answer. (2) Why would the Coo want to know this? Quantity Quality Control Costs Variable Capital Costs Total Costs 50 150 250 350 450 550 650 750 850 950 1,050 2 2.6 3.6 5.4 8.6 14.6 26.3 50 100 210 Table 3: Long-Run Cost and Production Data for Best Shoes Workplace Theft Estimated Labor Costs Monitoring Legal Services for Productivity due to Employee Morale Labor Relations 0.5 1.731.8 1.5 0.7 4,875 2 2 1 7,730.8 2 2.8 1.5 10.500 2 4.2 2.4 13,500 2 6.7 4.1 16,500 2 11.4 7.4 19,500 2 20.5 14.1 22,875 1 39 26,842.1 0 78 59.2 31,635 -1 163.8 130.2 37,500 -2 360.4 1.154.5 3.250 5.153.8 7,000 9,000 11,000 13,000 15,250 17894.7 21,090 24,900 2,892.30 8,132.30 12,894.00 17.513.10 22,519.70 27,532.10 32,556,20 38,229.10 44,943.00 53,157.00 63,350.60 28.2 462