Practice and Review-06 PDF

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Practice – 06 The Racqueteer Company makes tennis racquets and sells each racquet for $10. Racqueteer’s only factors of production are capital and labor. The number of racquets per day it produces depends on the number of employee hours per day as shown in the following table Number of employee hours per day 0 1 2 4 7 11 16 22

Number of racquets per day 0 5 10 15 20 25 30 35

Wages per hour = $15; Rental cost for the building = $60 (fixed) Based on the information above, answer the following 7 questions: 1. Is the firm experiencing increasing or diminishing marginal returns? 2. What is the firm’s profit-maximizing number of racquets? 3. Calculate Racqueteer’s profit at the profit maximizing level of output. 4. Calculate AFC, AVC, ATC and MC. What is the relationship between the four cost curves. 5. If the price of racquets falls to $8/unit, (a) What happens to the profit-maximizing level of output? (b) Calculate the profit at the profit-maximizing level of output? 6. How would Racqueteer’s profit-maximizing quantity be affected if the government imposed a tax of $10 per day on the company and the price of each racquet is $10? 7. What would Raqueteer’s profit-maximizing level of output be if the government imposed a $2 tax per racquet and the price of each racquet is $10?

Use the table below to answer the following three questions: Alisha’s Pet Sitting Service Number of Workers Output (number of pet visits) 0 0 1 20 2 45 3 60 4 70 8. What is the marginal product of the second worker? (a) 15 (b) 20 (c) 22.5 (d) 25 9. What is the marginal product of the third worker? (a) 15 (b) 20 (c) 35 (d) 60 Use the following table to answer the 7 questions below: Number of workers 0 1 4 9 15 23

Output per day 0 40 80 120 160 200

Output price per unit $2 $2 $2 $2 $2 $2

Wage per worker $14 $14 $14 $14 $14 $14

Rent $50 $50 $50 $50 $50 $50

10. Refer to the table above. What is the firm’s fixed cost? 11. Refer to the table above. When the firm uses 9 workers, how much will the firm incur in variable cost? 12. Refer to the table above. When the firm uses 9 workers, how much output will the firm produce and calculate the total cost? 13. Refer to the table above. When the firm uses 9 workers, how much will the firm collect in total revenue? 14. Refer to the table above. How much will the firm earn in profits if it produces 120 units of output? 15. Refer to the table above. What is the marginal cost of hiring the ninth worker? 16. Refer to the table above. What is the marginal cost of producing the 80th unit?

Use the following table to answer the 2 questions below: Quantity 10 15 20 25 30

Total Revenues 50 75 100 125 150

Explicit costs 36 63 93 125 161

Implicit costs 5 6 7 8 9

17. Refer to the table above. Calculate the accounting profit of producing 15 units of output. 18. Refer to the table above. Calculate the economic profit of producing 15 units of output. 19. Complete the table below based on the relationships among the various cost functions. Output TC TFC 0 $100 1 2 3 $210 4 5

TVC

ATC

AFC

AVC

MC $30

$60 $80 $80

20. Refer to the table below. Which firm’s production function exhibits diminishing marginal product? Number of workers 1 2 3 4

Output of Firm A 100 200 300 400

Output of Firm B 100 300 600 1,000

Output of Firm C 100 190 270 340

21. Harry owns a snow-removal business. He hires workers to shovel driveways for him during the winter. The first worker he hires can shovel twelve driveways in one day. When Harry hires two workers, they can shovel a total of 22 driveways in one day. When Harry hires a third worker, he shovels an additional eight driveways in one day. What is the marginal productivity of the second worker? (a) 7 (b) 10 (c) 12 (d) 22 22. A price-taking firm makes air conditioners. The market price of one of their new air conditioners is $145. Its total cost information is given in the table below: Air conditioners per day 1 2 3 4 5 6 7 8

Total cost ($ per day) 80 140 220 320 440 570 710 860

How many air conditioners should the firm produce per day if its goal is to maximize profit?

The table below shows a competitive firm’s total revenue from selling various quantities. Answer the following 2 questions based on the table below. Quantity 0 1 2 3 4

Total Revenue $0 $7 $14 $21 $28

23. What price does the firm charge per unit of output? (a) $0 (b) $7 (c) $14 (d) $21 24. For a firm operating in a competitive market, the marginal revenue is (a) $0 (b) $7 (c) $14 (d) $21 25. For the pizza seller whose marginal, average variable and average total cost curves are shown in the accompanying diagram, what is the profit-maximizing level of output and how much profit will this producer earn if the price of pizza is $2.50 per slice?

26. Based on the information provided in the table below, which of the three firms experiences economies of scale, constant returns to scale and diseconomies of scale? Output 1

TC of Firm 1 ($) 100

TC of Firm 2 ($) 25

TC of Firm 3 ($) 50

2

110

60

100

3

120

100

150

4

130

160

200

5

140

220

250

6

150

280

300

Answers: 1. The firm is experiencing diminishing marginal returns. 2. The firm’s profit is maximized when it produces 20 racquets. 3. Racqueteer’s profit at the profit maximizing level of output = $35 4. Number Number of of employee racquets hours per per day day 0 1 2 4 7 11 16 22 

AFC

AVC

ATC

MC

0 5 12 3 15 10 6 3 9 15 4 4 8 20 3 5.25 8.25 25 2.4 6.6 9 30 2 8 10 35 1.714286 9.428571 11.14286 MC intersects AVC and ATC at their minimum

3 3 6 9 12 15 18

5. i. Profit-maximizing level of output = 15 units ii. Maximum profit = $0 Profit-maximizing level of output would remain unchanged as compared to part (b) = 20 units Profit-maximizing level of output decreases as compared to part (b) = 15 units D A $50 $126 $176 $240 $64 $14 $1.05 $12 $6

6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Output

TC 0 1 2 3 4 5

$100 $130 $160 $210 $320 $500

TFC TVC ATC AFC AVC MC $100 $0 $100 $30 $130 $100 $30 $30 $100 $80 $50 $30 $30 $60 $100 $110 $70 $33 $37 $50 $100 $220 $25 $55 $110 $80 $100 $400 $100 $20 $180 $80

20. 21. 22. 23. 24. 25.

Firm C B 7 B B Profit-maximizing level of output = 570 pizzas; Profit = $627

26. Firm A experiences economies of scale; Firm B experiences diseconomies of scale; Firm C experiences constant returns to scale...