(a)
Filling of table with marginal cost,
(a)
Explanation of Solution
Marginal cost can be calculated using the following formula:
Substitute the respective values in Equation (1) to calculate the marginal product for unit 1.
The marginal cost for producing first output is $200.
Average variable cost can be calculated using the following formula:
Substitute the respective values in Equation (2) to calculate the average variable cost for unit 1.
The average variable cost for producing first output is $200.
Average total cost can be calculated using the following formula:
Substitute the respective values in Equation (3) to calculate the average total cost for unit 1.
The average total cost for producing first output is $1200.
Profit earned by the firm can be calculated using the following formula:
Substitute the respective values in Equation (4) to calculate the Profit earned by the firm for unit 1.
Thus, the profit earned by the firms for the first output is a loss by $700.
Use these values, which can fill the table as follows:
Table 1
Output (Tons per month) | Total cost | Price per ton | Marginal cost | Average variable cost | Average total cost | Profit (Monthly) |
0 | $1,000 | $500 | - | - | - | $1,000 |
1 | $1,200 | $500 | $200 | $200 | $1,200 | -$700 |
2 | $1,350 | $500 | $150 | $175 | $675 | -$350 |
3 | $1,550 | $500 | $200 | $183 | $515.67 | -$50 |
4 | $1,900 | $500 | $350 | $225 | $475 | $100 |
5 | $2,300 | $500 | $400 | $260 | $460 | $200 |
6 | $2,750 | $500 | $450 | $291.67 | $458.33 | $250 |
7 | $3,250 | $500 | $500 | $321.43 | $464.29 | $250 |
8 | $3,800 | $500 | $550 | $350 | $475 | $200 |
9 | $4,400 | $500 | $600 | $377.78 | $488.89 | $500 |
10 | $5,150 | $500 | $750 | $415 | $515 | -$150 |
(b)
Production of tomatoes when the tuckers are profit maximizers.
(b)
Explanation of Solution
A profit maximizing
(c)
Firms output level and the maximum profit, if the market price of tomatoes increases to $550.
(c)
Explanation of Solution
When the firm’s price of tomatoes increases to $550 per ton, the output produced by the firm may be increased from 7 to 8 ton. Then, its profit can be calculated as follows:
The profit earned by the firm is $600.
(d)
Production and profit of truck tomato farm if the price fell to $450per ton.
(d)
Explanation of Solution
When the firm’s price of tomatoes fell to $450 per ton, the output produced by the firm may be 6 ton. Then, its profit can be calculated as follows:
There is no profit earned by the firm because by this production, it earns $50 of loss and it does not cover its average variable cost at price $450.
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Chapter 22 Solutions
Economics: Private and Public Choice (MindTap Course List)
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