Assignment

You will define and calculate the remaining six major cost elements of a business when given the total costs and the quantity produced. You will then use the computed costs to determine a minimum cost output level for that business. Next, you will compute both the break-even price and the shutdown price for a hypothetical business in a perfectly competitive market. Then you will determine if that business would incur an economic profit at various market prices, and if the business should continue to produce at each of those price levels.

Questions

Table 1 shows an LED light bulb manufacturer's total cost of producing LED light bulbs at various output levels.

Table 1

1. What is this manufacturer's fixed cost? Explain how you determined your answer.

(Enter your response here.)

2. Using the data from Table 2 below, show at least one step-by-step calculation for each of the following:

a. Variable Costs (VC)

(Enter your response here.)

b. Average Variable Costs (AVC)

(Enter your response here.)

c. Average Total Costs (ATC)

(Enter your response here.)

d. Average Fixed Costs (AFC)

(Enter your response here.)

e. Marginal Costs (of a single case)

(Enter your response here.)

3. In Table 2, for each level of output, calculate and insert into the table the values for:

a. Variable Costs (VC)

b. Average Variable Costs (AVC)

c. Average Total Costs (ATC)

d. Average Fixed Costs (AFC)

e. Marginal Costs (MC)

Table 2

4. Given the information you computed in Table 2, what is the minimum cost output level? Explain why.

(Enter your response here.)

5. Brenda Smith operates her own farm raising chickens and producing eggs. She sells her eggs at the local farmers market, where there are several other egg producers also selling eggs by the dozen. (Brenda operates in a perfectly competitive market in which she is a "price taker.") To make sure she does not lose money on selling eggs, she does an analysis of her costs for producing eggs as shown on Table 3.

(Enter your response here.)

Table 3

a. What is Brenda's break-even price for a dozen eggs? Explain how you found that answer.

(Enter your response here.)

b. What is Brenda's shutdown price for a dozen eggs? Explain how you found that answer.

(Enter your response here.)

c. If the market price of a dozen eggs at the local farmers market is $1.45 per dozen, will Brenda make an economic profit? Explain how you determined your answer.

(Enter your response here.)

d. If the market price of a dozen eggs at the local farmers market is $1.45 per dozen, should Brenda continue producing eggs in the short-run? Explain how you determined your answer.

(Enter your response here.)

e. If the market price of a dozen eggs at the local farmers market is 72 cents per dozen, will Brenda make an economic profit? Explain how you determined your answer.

(Enter your response here.)

f. If the market price of a dozen eggs at the local farmers market is 72 cents per dozen, should Brenda continue producing eggs in the short-run? Explain how you determined your answer. g. If the market price of a dozen eggs at the local farmers market is 64 cents per dozen, will Brenda make an economic profit? Explain how you determined your answer.

(Enter your response here.)

g. If the market price of a dozen eggs at the local farmers market is 64 cents per dozen, should Brenda continue producing eggs in the short-run? Explain how you determined your answer.

(Enter your response here.)

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References:

Author. (Date.) Title. Source.

Table 1 Cases of LED light Total Costs bulbs produced in an hour 0 $4,500 10 $4,900 20 $5,100 30 $5,300 40 $5,400 50 $5,700 60 $6,700 70 $7,900 80 $9,700 90 $11,800Table 2 UNIT 8 BU224 ASSIGNMENT TEMPLATE Cases of Total Cost Variable Average Average Average Margin LED light Costs Variable Total Costs Fixed Cost al bulbs Costs Costs produced in a b. d. e. an hour 0 $4,500 Enter your na na na na response here.) 10 $4,900 Enter your (Enter your (Enter your (Enter your (Enter your respon response response response response seTable 3 UNIT 8 BU224 ASSIGNMENT TEMPLATE 6 Dozens of Fixed Total Cost Variable Average Average eggs Cost Costs Variable Costs Total Costs per dozen per dozen 0 $3.35 $3.35 na na na 10 $3.35 $10.50 $7.15 $0.72 $1.05 20 $3.35 $16.40 $13.05 $0.65 $0.82 30 $3.35 $23.10 $19.75 $0.66 $0.77 40 $3.35 $30.00 $26.65 $0.67 $0.75 50 $3.35 $36.50 $33.15 $0.66 $0.73 60 $3.35 $48.00 $44.65 $0.74 $0.80 70 $3.35 $64.40 $61.05 $0.87 $0.92 80 $3.35 $80.00 $76.65 $0.96 $1.00 90 $3.35 $135.00 $131.65 $1.46 $1.5020 $5,100 (Enter your (Enter your (Enter your (Enter your (Enter your respon response response response response se here.) here.) here.) here.) here.) 30 $5,300 Enter your (Enter your (Enter your Enter your (Enter your respon response response response response se here.) here.) here.) here.) here.) 40 $5,400 Enter your (Enter your (Enter your (Enter your (Enter your respon response response response response se here.) here.) here.) here.) here.) 50 $5,700 Enter your (Enter your (Enter your (Enter your (Enter your respon response response response response se here.) here.) here.) here.) here.) 60 $6,700 Enter your (Enter your (Enter your (Enter your (Enter your respon response response response response se here.) here.) here.) here.) here.)UNIT 8 BU224 ASSIGNMENT TEMPLATE 70 $7,900 Enter your (Enter your (Enter your (Enter your (Enter your respon response response response response se here.) here.) here.) here.) here.) 80 $9,700 Enter your (Enter your (Enter your (Enter your (Enter your respon response response response response se here.) here.) here.) here.) here.) 90 $11,800 (Enter your response here.)