2. Consider a firm that has won a contract to produce 200 units of output. Given that the firm's revenue from this contract is fixed (it is determined by the contract), the firm wants to fulfill the contract as cheaply as possible to maximize their profits. In other words, the firm now wants to minimize its costs of producing 200 units. The price per unit of capital is $10, the price per unit of labor is $20, and the firm's production function is given by q = 5K1/²L1/2 where q is output, K is capital used, and L is labor used. a. Solve for the cost-minimizing combination of labor and capital where the firm is able to produce 200 units and fulfill the contract. b. What is the lowest cost possible to fulfill the contract? What would be increased cost if the firm wanted to produce 201 units instead? (Hint, use the Lagrange multiplier, 2. C.

2. Consider a firm that has won a contract to produce 200 units of output. Given that the firm's revenue from this contract is fixed (it is determined by the contract), the firm wants to fulfill the contract as cheaply as possible to maximize their profits. In other words, the firm now wants to minimize its costs of producing 200 units. The price per unit of capital is $10, the price per unit of labor is $20, and the firm's production function is given by q = 5K1/²L1/2 where q is output, K is capital used, and L is labor used. a. Solve for the cost-minimizing combination of labor and capital where the firm is able to produce 200 units and fulfill the contract. b. What is the lowest cost possible to fulfill the contract? What would be increased cost if the firm wanted to produce 201 units instead? (Hint, use the Lagrange multiplier, 2. C.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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reasons for why this representative 5] Assume several identical firms engaged in perfect competition have the short run production function Q = L¹/a. Each firm pays a wage of w for each unit of labor employed and fixed costs are 10. a) Assume the firm faces a tax, t, on its output. Determine how a change in this tax will affect output ( b) Assume the firm faces a tax, t, on its profit. Determine how a change in this tax will affect output (2). c) based on your answers above, which of these two taxes is preferred by a government interested in minimizing the harm to workers in the industry?
4. COST RELATIONSHIPS. A firm's total costs can be broken down into fixed costs (e.g., rent) and variable costs (e.g., payroll), so TC = FC + VC. Dividing by quantity converts these to averages, so TC/Q = FC/Q + VC/Q, or ATC = AFC + AVC. The additional cost incurred by producing one additional unit is the marginal cost, so MC = ATC/AQ, where the Greek letter delta (A) means "a change in." Here is a table showing the various costs for a simple firm that sells a product using a building (capital, a fixed input) and workers (labor, a variable input). Assume that the price of labor is 20 and the price of capital is 120. Use these three cost relationships to complete the table. Total Total Average Variable Cost, Сapital, Output, Q Labor, Total Average Fixed Average Total Cost, Marginal Cost, MC Variable K Fixed Cost, TC Cost, Cost, TFC Cost, TVC AVC AFC АТС 1 120 N/A N/A N/A N/A 1 2 1 160 3 1 20 3 6. 1 40
Economic profit of $25. Economic loss of $7. Economic loss of $13. Economic profit of $7.
Management believes it can sell a new product for $8.50. The fixed costs of production are estimated to be $6,000, and the variable costs are $3.20 a unit. Complete the following table at the given levels of output and the relationships between quantity and fixed costs, quantity and variable costs, and quantity and total costs. Quantity Total Revenue Variable Costs Fixed Costs Total Costs Profits (Loss) 0 500 1,000 1,500 2,000 2,500 3,000 Determine the break-even level using the above table and use the following Equation to confirm the break-even level of output. PQB = FC + VQB PQB - VQB = FC QB (P-V) = FC QB = FC P-V What would happen to the total revenue schedule, the total cost schedule, and the break-even level of output if management determined that fixed costs would…
7. 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: a. 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. b. 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 answe
11. Profit maximization using total cost and total revenue curves Suppose Edison runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, and the market price is $25 per shirt. The following graph shows Edison's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for shirts quantities zero through seven (inclusive) that Edison produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 100 0 -25 Ho 0 ☐ 1 ☐ 2 ☐ ▬▬▬ 3 4 5 QUANTITY (Shirts) ■ 6 Total Cost 7 8 O Total Revenue Profit ?
Suppose that firm 1 is a restaurant, whose costs are ingredients, staff and space. Ingredients and staff are paid for weekly and staff can be hired or fired at will. The rental for the space is a one year lease, to move out of this space and into a smaller or larger one would take at least one year. Firm 2 is a door-to-door sales firm where the costs are inventory and staff. Both are paid every two weeks, and staff can be fired or fired at will (but must be paid for the current two weeks) while inventory can be bought or sold within a week. Is one month within the “short run” for firm 1? Is one month within the “short run” for firm 2? Explain your answer.
File 5 R24 Undo AKIT 12345678 234 1 14 15 1 67 1 1 1 9 1 10 1 1 11 1 12 1 13 1 1 16 1 1 1 Home Insert Draw Page Layout Formulas 1 1 Paste Clipboard N MOTN B L 0 1 2 3 4 5 6 7 8 9 10 11 12 13 17 18 19 20 21 22 Fixed Costs = 23 24 25 14 15 16 17 18 OPOLEEEEE X ✓ fx C D TP MPP 0 12 26 41 55 68 Arial 80 91 101 110 118 125 131 136 BIU 140 143 145 146 146 V ✓10 Font E FC V V F VLC A^ A Data Review View Automate Help IN G VMC Alignment H TVC TC 7 General $ V J AFC % 9 Number $5K interest and principle, insurance and property tax + $1 K Lawyer's retainer + $2K Government Regulation compliance manager + $1K HR/diversity compliance manager + $2.5K accountant + $3K principal's opportunity cost ←.0 .00 K AVTC →.0 5 Conditional Format as Formatting Table ✓ Styles ATC M MC Cell Styles N * Insert Delete Format Cells V P 图M Σ AT Sort & Find & Filter Select ✓ Editing R Comments Analyze Data Analysis = S Share T Column A: K = units of capital Column B: L = Column C: TP = Column D: MPP = Marginal…
Suppose you own a small business. Last month, your total revenue was $7,500. In addition, you paid $2,500 in monthly rent for office space, $300 in monthly rent for equipment, $1,750 to your workers in wages for the month, and $1,800 for the supplies you used that month. If you correctly determine that your economic profit last month was -$200, then it must be true that