You collect the following production data for your firm:

a.Calculate the Q, AP, and MP for L = 8 workers.

b.At 8 workers, is MC rising or falling, and how do you know?

Q L

224 2

1,624 6

454 3

68 1

2,011 9

1,392 5

1,505 7

740 4

1,771 11

2,242 10

2.Bloots, the popular new startup company that manufacturers the world's first-ever Bluetooth-enabled boots, estimated its short-run costs using a U-shaped average variable cost function of the form and obtained the following results.Total fixed cost (TFC) at Bloots is $1,040.

Adjusted R Square 0.836

Coefficients Standard Error t Stat P-value

Intercept 36.97 3.81 9.71 0.0002

Q -3.11 0.84 -3.72 0.0017

Q^2 0.22 0.04 5.70 0.0000

a.What level of output (Q) is associated with the minimum AVC? What is the value of AVC at this minimum?

b.Determine equations for ATC, TC, and MC. Graph one scatterplot of Q vs. TC, and another scatterplot of Q vs. ATC, AVC, and MC.

c.When output is 10, how much is TC, AVC, ATC, and MC?

d.At what amount of output does labor change from exhibiting increasing returns to decreasing returns?

3.In the U.S., city governments usually grant a monopoly right to a single cable company to provide cable service to people in that city; i.e., if you want television service to your house delivered through coaxial or fiber-optic cable, there is only one company from which to choose. Our definition of perfectly competitive markets stressed three characteristics: 1) small firms each producing a small percentage of total output, 2) firms produce homogeneous products, and 3) easy entry and exit from the industry. Recent developments in the industry (say, over the past decade) have made the cable market much more competitive. Present an argument why the cable industry may now satisfy each of these three criteria, even despite the obvious government-granted monopoly.

4.Suppose the market demand and supply functions are Q_D = 58,200 - 310P and Q_S = 90P - 1400. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.

a.Determine the equilibrium price and quantity in this market.

b.You've researched and found that most firms in the market currently experience costs such that TC = 220 + 210Q - 4.1Q² + 0.06Q³. Determine whether or not you should enter this market. Use graphs to support your answer. (Remember that you can Format Axis and change the Minimum and Maximum Bounds of your axes to "zoom in" to a graph in Excel.)

c.Due to unforeseen delays, you don't enter the market. However, a year later the market supply has changed to Q_S = 90P + 3400. Are you surprised at this shift in supply?

d.Given the new supply conditions, determine whether or not you should enter the market.