A.

Peter owns a copy store. He leases two copy machines for which he pays $20 each per day. He cannot increase the number of machines he leases without giving the office machine company six weeks' notice. He can hire as many workers as he wants, at a cost of $40 per day per worker. These are the only two inputs he uses to produce copies.

a.Using the information provided complete the table

Quantity of Workers Quantity of copies per day Fixed Costs Variable Costs Total Costs Average Total Costs Marginal Costs

0 0

1 600

2 1100

3 1500

4 1800

5 2000

6 2100

b.Draw the average total cost curve and marginal cost curve for Peter's store. Do these curves have the expected shape? Briefly explain.

B.

Frances sells earrings in the perfectly competitive earrings market. Her output per day and her costs are as follows:

Output per day Total Cost ($)

0 1.00

1 2.50

2 3.50

3 4.20

4 4.50

5 5.20

6 6.20

7 8.70

8 10.70

9 13.00

a.If the current equilibrium price in the earrings market is $1.80, how many earrings will Frances produce, what price she will she charge and how much profit (or loss) will she make? (Hint: you need first to determine the fixed cost from the data provided). Draw a graph to illustrate your answer. Your graph should be clearly labeled and should include Frances's demand, ATC, AVC, MC and MR curves; the price she is charging, the quantity she is producing and the area representing her profit (or loss).

b.Suppose the equilibrium price of earrings falls to $1.00. Now how many earrings will Frances produce?