I. Suppose that you leave a job that pays $40,000/year and use $10,000 of your s
ID: 1204220 • Letter: I
Question
I. Suppose that you leave a job that pays $40,000/year and use $10,000 of your savings that had been earning $500/year in interest in order to start your own business. In your business, you sell 450 units at $60/unit while paying $12,000 for capital cost and $12,000 for labor cost. Assume there are no other costs than those mentioned here. How much is economic profit? A. -$13,000 B. $3000 C. $26,500 D. $37,500 E. - $47,500 2. Which of the following statements about the relationship between economic profits, normal profits and accounting profits is true? A. Accounting profits are always lower than economic profits. B. Accounting profits must equal economic profits (by definition). C. Accounting profits are always greater than normal profits. D. Accounting profits are equal to or greater than economic profits. 3. What is the fixed cost from the following table? Output 0 10 Total Cost $40 S60 $90 $130 $180 $240 30 40 50 Given the following cost data for a firm that is selling in a perfectly competitive market: Output AFC AVC ATC MC $100.00 $17.00$117.00 66.00 48.33 39.25 34.00 $17.00 15.00 13.00 12.00 50.00 16.00 33.33 15.00 25.00 14.25 20.00 14.00 16.67 14.00 14.29 15.71 12.50 17.50 11.11 19.44 10.00 21.60 30.6713.00 26.00 30.00 35.00 41.00 14.00 30.00 30.00 30.55 31.60 9 10Explanation / Answer
1.
2. C
3. Fixed cost is the cost which also occurs at the zero level of output. In the above table, fixed cost is $ 40.
4. Price = $ 30
Quantity = 8 units because in Perfect competition, P = MC at 8 units of output
TR = 30 X 8 = 240
TC = ATC X Q = 30 X 8 = 240
Profit = TR - TC = 240 - 240 = 0
5. When P = $ 14
Quantity = 6 units
TR = 6 X 14 = 84
TC = ATC X Q = 30.67 X 6 = 184.02
TVC = 14 X 6 = 84
Firm is just covering its variable cost so firm can operate.
6.
q TC MC
0 65
1 80 15
2 95 15
3 120 25
4 150 30
5 200 50
Price = MC = 50 at 5 units of output.
TR = 30 X 5 = 150
TC = 200
AT 5 units, firm earns loss of $ 50, so profit maximising output is 4 units.
7. B. Each firm produces a differentiated product.
8. B
9. D
10. D
11. C