Economics 384 Homework #4 Name ________________________
30 Points
1. 8 Points
Assume you own a computer shop and that you sell 2,000 computers a year. The selling price of the computers is $900 in a perfectly competitive market. Assume your ATC is $1,000 and that your AVC is $800 while your AFC is $200. Should you continue to produce in the short run or shutdown? Explain your answer including how much money you lose if you produce vs. how much you lose if you shutdown.
2. 5 Points
Assume a self-service gas station has the following marginal cost function and that gasoline sells for $3.00 per gallon.
MC = $1.25 +.00002Q (where Q is the number of gallons of gasoline sold.)
Assume the only variable cost for this firm is the gasoline. What is the amount of gasoline this firm should sell in order to maximize profits? Show calculations.
3. 5 Points
Next assume the gas station’s marginal cost function has changed as shown below, and the price of gasoline has decreased to $2.50 per gallon.
MC = $1.50 +.00002Q (where Q is the number of gallons of gasoline sold.)
Assume the only variable cost for this firm is the gasoline. Calculate the amount of gasoline this firm should sell in order to maximize profits? Show Calculations.
Continued on backside…
Page 2
4. 12 Points
Beth’s Lawn Mowing Service is a small business that acts as a price taker; therefore: MR = P
The prevailing market price of lawn mowing is $20 per acre.
Her total and marginal cost functions are:
TC = .1Q2+ 10Q + 50
MC = .2Q + 10
a) How many acres should Beth choose to mow if she wants to maximize profits? Show calculations.
b) Calculate the amount of profit for this period. Show calculations.
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Get The Answer Economics 384 Homework #4 Name -Assume you own a computer shop and that you sell 2,000 computers a year
Economics 384 Homework #4 Name ________________________
30 Points
1. 8 Points
Assume you own a computer shop and that you sell 2,000 computers a year. The selling price of the computers is $900 in a perfectly competitive market. Assume your ATC is $1,000 and that your AVC is $800 while your AFC is $200. Should you continue to produce in the short run or shutdown? Explain your answer including how much money you lose if you produce vs. how much you lose if you shutdown.
2. 5 Points
Assume a self-service gas station has the following marginal cost function and that gasoline sells for $3.00 per gallon.
MC = $1.25 +.00002Q (where Q is the number of gallons of gasoline sold.)
Assume the only variable cost for this firm is the gasoline. What is the amount of gasoline this firm should sell in order to maximize profits? Show calculations.
3. 5 Points
Next assume the gas station’s marginal cost function has changed as shown below, and the price of gasoline has decreased to $2.50 per gallon.
MC = $1.50 +.00002Q (where Q is the number of gallons of gasoline sold.)
Assume the only variable cost for this firm is the gasoline. Calculate the amount of gasoline this firm should sell in order to maximize profits? Show Calculations.
Continued on backside…
Page 2
4. 12 Points
Beth’s Lawn Mowing Service is a small business that acts as a price taker; therefore: MR = P
The prevailing market price of lawn mowing is $20 per acre.
Her total and marginal cost functions are:
TC = .1Q2+ 10Q + 50
MC = .2Q + 10
a) How many acres should Beth choose to mow if she wants to maximize profits? Show calculations.
b) Calculate the amount of profit for this period. Show calculations.
Previous answers to this question
This is a preview of an assignment submitted on our website by a student. If you need help with this question or any assignment help, click on the order button below and get started. We guarantee authentic, quality, 100% plagiarism free work or your money back.
Get The Answer