You are economic consultant for Jack, who farms raw cotton in a perfectly compe market. One day he gives you the following data at his present level of production Output = 2000 pounds, market price = $5.00, total cost =$8000, fixed cost=$2000 marginal cost-$5. The minimum of AVC occurs at {1000 pounds at $2} and the minimum of ATC at {1500 pounds at $3.5}. Please help Jack with the following questions based on the above figures: a. Draw a graph for the raw cotton market and a graph for Jack's farm current situ that includes MC, ATC, and AVC, labeling all relevant points on axes with numerical values. Is Jack maximizing the profit (minimizing the loss)? Why or not? Label the total profit/loss area. b. Suppose more farmers enter the raw cotton market until the market price is $3.0 pound. On the same graphs, show the effect of this change in the market place. %3D

You are economic consultant for Jack, who farms raw cotton in a perfectly compe market. One day he gives you the following data at his present level of production Output = 2000 pounds, market price = $5.00, total cost =$8000, fixed cost=$2000 marginal cost-$5. The minimum of AVC occurs at {1000 pounds at $2} and the minimum of ATC at {1500 pounds at $3.5}. Please help Jack with the following questions based on the above figures: a. Draw a graph for the raw cotton market and a graph for Jack's farm current situ that includes MC, ATC, and AVC, labeling all relevant points on axes with numerical values. Is Jack maximizing the profit (minimizing the loss)? Why or not? Label the total profit/loss area. b. Suppose more farmers enter the raw cotton market until the market price is $3.0 pound. On the same graphs, show the effect of this change in the market place. %3D

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.6IP

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You are economic consultant for Jack, who farms raw cotton in a perfectly competitive market. One day he gives you the following data at his present level of production: Output = 2000 pounds, market price = $5.00, total cost =$8000, fixed cost=$2000, marginal cost=$5. The minimum of AVC occurs at {1000 pounds at $2} and the minimum of ATC at {1500 pounds at $3.5}. Please help Jack with the following questions based on the above figures: Draw a graph for the raw cotton market and a graph for Jack’s farm current situation that includes MC, ATC, and AVC, labeling all relevant points on axes with numerical values. Is Jack maximizing the profit (minimizing the loss)? Why or why not? Label the total profit/loss area. Suppose more farmers enter the raw cotton market until the market price is $3.00 per pound. On the same graphs, show the effect of this change in the market place. Would you like to suggest Jack leaving the market in the short run? Explain your answer.
The figure shows a bakery's marginal and average cost curves, and its isoprofit curves. The bakery is a price-taker in a large bread market. Suppose the current market price is P₁. Based on this information, which of the following statements is correct? Price, Cost €6 (5 20 40 60 80 Quantity MC hoprofits AC 100 120 140 160 180 number of loaves Select one or more: a. The bakery would be better off raising its price up to its AC level. O b. The bakery would be minimising its loss at A. Oc. If the bakery is not yet in the market then it would not enter the market. d. If the bakery is already in the market, then it would always immediately exit the market because it is making a loss.
Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earned an accounting profit of $200 per acre. Is he currently earning an economic profit?
The owner of Tie-Dyed T-shirts, a perfectly competitive firm, hires you to give him economic advice. He tells you that the market price for his shirts is $15 and that he is currently producing 200 shirts at an AVC of $10 and an ATC of $20. What would you recommend that he do? O a. Tell him that you cannot make any recommendations until you know what his fixed costs are. O b. Continue producing in the short run, as his loss from production is less than his fixed costs, but exit the industry in the long run if there are no changes in economic conditions. Oc Shut down in the short run, as he is incurring a loss, and leave the industry in the long run, if there are no changes in economic conditions. O d. Continue to produce in the short run, even though he is earning a loss, and expand production in the future hoping to increase market share and total revenue.
a) Suppose in the short-run, the amount of machines she has is fixed at 27. How many mixers should she use? How many baklavas will she produce? How much profit will she make? Using an isoprofit line, as well as the production function, draw a diagram of your solution and label all the intercept and slopes b) In the long-run, how many mixers should she use? How many machines? How many baklavas will she make? c) Suppose that the government decides to provide a $1 subsidy per mixer. What is the profit-maximizing amount of each input to use now?
TOTAL COST AND REVENUE (Dollars) -25 Suppose Lorenzo runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a price-taker market, and the market price is $10 per teddy bear. The following graph shows Lorenzo's total cost curve. Use the blue points (circle symbol) to plot total revenue, and the green points (triangle symbol) to plot profit for the first seven teddy bears that Lorenzo produces, including zero teddy bears. 125 Total Cost 100 Total Revenue 75 -50 1 2 5 6 QUANTITY (Teddy bears) Profit Calculate Lorenzo's marginal revenue and marginal cost for the first seven teddy bears he produces, and plot them on the following graph. Use the blue points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost. ? COSTS AND REVENUE (Dollars per teddy bear) 2 3 5 QUANTITY (Teddy bears) Marginal Revenue Marginal Cost Lorenzo's profit is maximized when he produces teddy bears. When he does this, the marginal…
Farmer Brown grows blueberries. The average total cost, average variable cost, and marginal cost of growing blueberries for an individual farmer are illustrated in the graph to the right. Farmer Brown will incur losses if the market price falls below $ per crate. (Enter a numeric response using an integer.) Furthermore, farmer Brown should shut down in the short run if the market price falls below $ per crate. C Price and cost (dollars per crate) 40- 36- 32- 28- 24- 20- 16- 12- 8- 4 0 MC AT AVI 90 10 20 30 40 50 60 70 80 Quantity of blueberries (crates per week) 1
a) suppose in the short run the amount of machines she has is fixed at 27. How many mixers should she use? How many baklavas will she produce? How much profit will she make? b) using an isoprofit line, as well as the production function, draw a diagram of your solution from a). Carefully label all the slopes and intercepts. c) In the long run, how many mixers should she use? How many machines? How many baklavas will she make?
Jeannette has a wheat farm, and the wheat market is perfectly competitive. The market price of a bushel of wheat is $18, and Jeannette’s machinery costs $140 per day and is the only fixed input. Her variable cost consists of the wages paid to the farm workers, and the fertilizer. The variable cost per day associated with each level of output is given by the table below. Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output. What is the break-even price and quantity? What is the shut-down price and quantity? If the price at which Jeannette can sell wheat is $16/bu., will Jeannette earn a profit in the short run? In the short run, should she produce or shut down? If the price at which Jeannette can…
Jeannette has a wheat farm, and the wheat market is perfectly competitive. The market price of a bushel of wheat is $18, and Jeannette’s machinery costs $140 per day and is the only fixed input. Her variable cost consists of the wages paid to the farm workers, and the fertilizer. The variable cost per day associated with each level of output is given by the table below. Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output. What is the break-even price and quantity, shut-down price and quantity? If the price at which Jeannette can sell wheat is $16/bu., will Jeannette earn a profit in the short run? In the short run, should she produce or shut down? Q VC TC MC AVC ATC 0 0 10 160 20 220 30 300 40 420 50 580…
Jeannette has a wheat farm, and the wheat market is perfectly competitive. The market price of a bushel of wheat is $18, and Jeannette’s machinery costs $140 per day and is the only fixed input. Her variable cost consists of the wages paid to the farm workers, and the fertilizer. The variable cost per day associated with each level of output is given by the table below. Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output. Q VC TC MC AVC ATC 0 0 10 160 20 220 30 300 40 420 50 580 60 780 70 1,020
In a perfectly competitive market there is a donut shop that sells 1,200 donuts daily. Each donut sells for the market price of $0.75 and they sell out every day. Assume that this company has labor costs of $275 and materials costs of $400. a. Using only variable costs, what is the donut shop’s daily profit? - Now assume that the owner is thinking of adding a second location downtown. The capital investment required is $4,000. The normal rate of return is 5%. b. If the new shop could operate under the same conditions as the original location is it a good business decision to expand? c. What would be the new shop’s daily profit?