Question
Sweatshirts per day Employee-hours per day 0 0 2 1 4 3 6 6 8 10 10 15 12 21 14 28 Suppose that the
Sweatshirts per day | Employee-hours per day |
0 | 0 |
2 | 1 |
4 | 3 |
6 | 6 |
8 | 10 |
10 | 15 |
12 | 21 |
14 | 28 |
Suppose that the going wage is $10/hour and South End Lifestyle's daily capital cost for renting the building and the sewing machines is fixed at $50.
a. [5 points] Calculate South End Lifestyle's variable cost, fixed cost, total cost, marginal cost, and average total cost of producing between 0 and 14 sweatshirts per day. Make sure to put marginal cost at the midpoint between units, and remember that MC = TC/Q.
Sweatshirts per day | Employee-hours per day | TVC | TFC | TC | MC | ATC |
0 | 0 | |||||
2 | 1 | |||||
4 | 3 | |||||
6 | 6 | |||||
8 | 10 | |||||
10 | 15 | |||||
12 | 21 | |||||
14 | 28 |
b. [5 points] At the market price of $22.50 per sweatshirt, what is South End Lifestyle's profit-maximizing quantity of sweatshirts? What is the firm's profit? What is the quantity need for profit maximization.
c. [5 points] Suppose that South End Lifestyle's capital cost were not $50 per day, but only $40 per day. Recalculate South End Lifestyle's variable cost, fixed cost, total cost, marginal cost, and average total cost. Now what is the profit-maximizing number of sweatshirts? What is the firm's profit?
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