Questions
Table 2.a. shows an LED light bulb
manufacturer’s total cost of producing LED light bulbs.
|
Table 2.a. |
|
|
Cases of LED light bulbs produced in an hour |
Total Cost |
|
0 |
$4,500 |
|
10 |
$4,900 |
|
20 |
$5,100 |
|
30 |
$5,300 |
|
40 |
$5,400 |
|
50 |
$5,700 |
|
60 |
$6,700 |
|
70 |
$7,900 |
|
80 |
$9,700 |
|
90 |
$11,800 |
1.
What is this manufacturer’s fixed cost? Explain
why.
2.
Assuming that you only know the Total Costs (TC)
(as is shown in the Table 2.a. above) explain
how you would calculate each of the following:
a.
Variable Cost (VC);
b.
Average Variable Cost (AVC);
c.
Average Total Cost (ATC);
d.
Average Fixed Cost (AFC); and,
e.
Marginal Costs (of a single case).
3.
In Table 3.a.,
for each level of output, insert into the table the values for:
a.
the Variable Cost
(VC);
b.
the Average
Variable Cost (AVC);
c.
the Average Total
Cost (ATC); and,
d. the Average Fixed Cost (AFC).
|
Table 3.a. |
|||||
|
Cases of LED |
Total Cost |
Variable Costs |
Average |
Average Total |
Average Fixed |
|
a. |
b. |
c. |
d. |
||
|
0 |
$4,500 |
n/a |
n/a |
n/a |
|
|
10 |
$4,900 |
||||
|
20 |
$5,100 |
||||
|
30 |
$5,300 |
||||
|
40 |
$5,400 |
||||
|
50 |
$5,700 |
||||
|
60 |
$6,700 |
||||
|
70 |
$7,900 |
||||
|
80 |
$9,700 |
||||
|
90 |
$11,800 |
e. Given the information you computed in Table
3.a., what is the minimum cost output Level? Explain why.
4. Brenda Smith operates her own farm, raising
chickens and producing eggs. She sells her eggs at the local farmers’ market,
where there are several other egg producers’ also selling eggs by the dozen.
(Brenda operates in a perfectly competitive market in which she is a “price
taker.”) In order to make sure she does not lose money on selling eggs, she
does an analysis of her costs for producing eggs as shown on Table 4.a.
|
Table |
|||||
|
Dozens of eggs |
Fixed Cost |
Total Cost |
Variable Costs |
Average Variable Costs per dozen |
Average Total Costs per dozen |
|
0 |
$3.35 |
$3.35 |
n/a |
n/a |
n/a |
|
10 |
$3.35 |
$10.50 |
$7.15 |
$0.72 |
$1.05 |
|
20 |
$3.35 |
$16.40 |
$13.05 |
$0.65 |
$0.82 |
|
30 |
$3.35 |
$23.10 |
$19.75 |
$0.66 |
$0.77 |
|
40 |
$3.35 |
$30.00 |
$26.65 |
$0.67 |
$0.75 |
|
50 |
$3.35 |
$36.50 |
$33.15 |
$0.66 |
$0.73 |
|
60 |
$3.35 |
$48.00 |
$44.65 |
$0.74 |
$0.80 |
|
70 |
$3.35 |
$64.40 |
$61.05 |
$0.87 |
$0.92 |
|
80 |
$3.35 |
$80.00 |
$76.65 |
$0.96 |
$1.00 |
|
90 |
$3.35 |
$135.00 |
$131.65 |
$1.46 |
$1.50 |
a. What is Brenda’s break-even price for a dozen of
eggs? Explain how you found that answer.
b. What is Brenda’s shut-down price for a dozen of
eggs? Explain how you found that answer.
c. If the market price of a dozen eggs at the local
farmers’ market is $1.45 per dozen, will Brenda make an economic profit?
Explain how you determined your answer.
d. If the market price of a dozen eggs at the local
farmers’ market is $1.45 per dozen, should Brenda continue producing eggs in
the short run? Explain how you
determined your answer.
e. If the market price of a dozen eggs at the local
farmers’ market is 72 cents per dozen, will Brenda make an economic profit?
Explain how you determined your answer.
f. If the market price of a dozen eggs at the local
farmers’ market is 72 cents per dozen, should Brenda continue producing eggs in
the short run? Explain how you determined
your answer.
g. If the market price of a dozen eggs at the local
farmers’ market is 64 cents per dozen, will Brenda make an economic profit?
Explain how you determined your answer.
h. If the market price of a dozen eggs at the local
farmers’ market is 64 cents per dozen, should Brenda continue producing eggs in
the short run? Explain how you
determined your answer.
