Micro Homework

1. What is the main overriding goal of most businesses?

2.Fill in the following cost table. For the first few rows, you can work from left to right. However, as you get to the last two rows, you will need to use the information from the right side of the table to work back to the left side.We do not calculate average costs at a quantity of 0.

Q	TFC	TVC	TC	AFC	AVC	ATC	MC
0	5,000	0		XXXXXX	XXXXXX	XXXXXX	XXXXXX
1		3.000					3,000
2		5,000
3			11,000
4						3,250
5							4,000

a.) Can you tell if this is the short run or long run? Explain.

b.) Can you tell which level of output yields the highest profit? If so, what is the output level? If not, explain.

c.) Economists define the "Break-even Price" as the lowest point on the average total cost curve or the lowest average total cost given in a table.What is the break-even price in this problem?

d.) Economists define the "Shutdown Price" as the lowest point on the average variable cost curve or the lowest average variable cost given in a table.What is the shutdown price in this problem?

3. Draw a U-shaped average total cost curve and a marginal cost curve on the same graph.

4. What shapes would you expect from the following cost curves: total fixed cost, total cost, average fixed cost, average total cost?

5. Economists define profit a bit differently than in accounting. In addition to explicit costs, we also subtract out implicit costswhat you could have earned from the next best alternative.For example, suppose that you are making $60,000 as an accountant. You decide to quit your job and open up your own accounting business. You end up making a profit of $50,000. How have you done? Accountants would call this a profit of $50,000 while economists would say that you just lost $10,000 (relative to what you were making before).So, economists define profits as being equal to total revenues minus total costs, where costs include the opportunity cost.

Suppose that a firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital, and $200,000 on materials.Calculate the firm's accounting profit?If the firm's factory sits on land owned by the firm that it could rent for $30,000 per year, calculate economic profits.