**Bob's Flower Pot Production: Cost Analysis**Bob produces flower pots for sale using 3-D printing technology. He incurs fixed costs by renting a building for $30,000 per month and machinery for $20,000 per month. His variable costs per month are displayed in the table below:| **Quantity of flower pots** | **VC (Variable Cost)** ||-----------------------------|------------------------|| 0 | $0 || 1,000 | $5,000 || 2,000 | $8,000 || 3,000 | $9,000 || 4,000 | $14,000 || 5,000 | $20,000 || 6,000 | $33,000 || 7,000 | $49,000 || 8,000 | $72,000 || 9,000 | $99,000 || 10,000 | $150,000 |### Tasks:a) **Calculate Bob’s average variable cost, average total cost, and marginal cost for each quantity of output.**- **Average Variable Cost (AVC):** Variable Cost / Quantity of output- **Average Total Cost (ATC):** (Fixed Costs + Variable Cost) / Quantity of output- **Marginal Cost (MC):** Change in Variable Cost / Change in Quantityb) **Industry Equilibrium Analysis:**Assume free entry into the industry with identical cost structures. If the current price of a flower pot is $25, calculate Bob's profit. Assess whether this is a long-run equilibrium. If not, predict the long-run price of a flower pot.### Additional Information:- **Fixed Costs:** $50,000 per month (building + machinery)- **Price per Flower Pot:** $25Perform the required calculations and analyses to answer the questions.

Rent on building = $30,000 and rent on machinery is $20,000 per month. Total fixed cost = $30,000+$20,000= $50,000.Average variable cost is the variable cost per unit output and average total cost is the total cost per unit output. Marginal cost is the ratio of change in cost to change in output.A profit-maximizing firm produces at P=MC. In the long run, each firm earns zero profit in the perfectly competitive market. Long run price P= min ATC.AVC for Q=1000:The total cost for $1000 is the sum of fixed cost and variable cost.The average total cost for 1000 is calculated asMarginal cost for 2000 is calculated asThe calculated values is shown in below table:Quantity of flower potsvCFCTCAVCATCMC00500005000010005000500005500055552000800050000580004293300090005000059000319.67140001400050000640003.51655000200005000070000414660003300050000830005.513.83137000490005000099000714.141680007200050000122000915.2523900099000500001490001116.56271000015000050000200000152051In the short run, the market price is $25. The firm is a perfectly competitive firm so MR = 25.The firm's MC for 8000 pots is 23 and for 9000 pots is 27. The firm produces as long as its MR is greater than or equal to MC. Therefore, the short-run profit-maximizing output for a firm is 8000 pots.Bob's profit is calculated asProfit in the short run is $94,000. The price P= $25 is not a long-run equilibrium price. In the short run, all firms earn economic profit. It attracts more firms in the industry and thus supply of pots will increase in the market. As a result, the equilibrium price falls. In the long run, the equilibrium price is equal to the minimum of ATC which is equal to 13.83.The long run equilibrium price is 13.83a) The AVC, ATC, and MC is shown in the table below:Quantity of flower potsAVCATCMC010005555200042933000319.67140003.51655000414660005.513.83137000714.14168000915.252390001116.562710000152051Part b)Bob's profit in the short run is $94,000.P =25 is not a long-run equilibrium price. Long-run equilibrium price =13.83

Business

Economics

4. Bob produces flower pots for sale, which he designs and manufactures using 3-D printing technology. Bob rents a building for $30,000 per month and rents machinery for $20,000 a month. Those are his fixed costs. His variable cost per month is given in the accompanying table. Quantity of flower pots 0 VC $0 1,000 5,000 2,000 8,000 3,000 9,000 4,000 14,000 5,000 20,000 6,000 33,000 7,000 49,000 8,000 72,000 9,000 99,000 10,000 150,000 a) Calculate Bob's average variable cost, average total cost, and marginal cost for each quantity of output. b) There is free entry into the industry, and anyone who enters will face the same costs as Bob. Suppose that currently the price of a flower pot is $25. What will Bob's profit be? Is this a long-run equilibrium? If not, what will the price of a flower pot be in the long run?

4. Bob produces flower pots for sale, which he designs and manufactures using 3-D printing technology. Bob rents a building for $30,000 per month and rents machinery for $20,000 a month. Those are his fixed costs. His variable cost per month is given in the accompanying table. Quantity of flower pots 0 VC $0 1,000 5,000 2,000 8,000 3,000 9,000 4,000 14,000 5,000 20,000 6,000 33,000 7,000 49,000 8,000 72,000 9,000 99,000 10,000 150,000 a) Calculate Bob's average variable cost, average total cost, and marginal cost for each quantity of output. b) There is free entry into the industry, and anyone who enters will face the same costs as Bob. Suppose that currently the price of a flower pot is $25. What will Bob's profit be? Is this a long-run equilibrium? If not, what will the price of a flower pot be in the long run?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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