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WMU ECON 2010 - Assignment

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Econ2010 – Practice Assignment #5 SECTION I. 1. Define marginal cost. Why does marginal cost eventually increase as total product increases? 2. What is the relationship between the long-run average cost curve and the short-run average cost curves? What do economies of scale and diseconomies of scale have on the shape of the long-run average cost curve? 3. What are the two main differences between the short-run and long-run? Why does diminishing marginal product exist in the short-run, but not the long run? 4. Why is marginal revenue equal to both average revenue and price in a perfectly competitive setting? 5. Why can't a perfectly competitive firm influence industry price? 6. How can the shape of a firm's long-run average cost curve determine the optimal size of the firm? SECTION II. 1. Jennifer's Carpet Cleaners has fixed costs of $100 per month and a total cost curve as given in the table below. Output is the number of carpets cleaned. Given this data, answer the questions below. Output Total Cost 10 $200 20 $320 30 $460 40 $620 50 $800 60 $1000 a. The current price for cleaning a carpet is $18. How many carpets must be cleaned to maximize profits? What will the profit be? b. Suppose the price falls to $14. Calculate the profit-maximizing output and the total profits. 6. For each of the following two situations, determine: i) Profit-maximizing output level, and ii) total profits A. Fixed costs = $40,000; price = $600Output Total Cost Marginal Cost 100 $80,000 200 $120,000 300 $170,000 400 $230,000 500 $300,000 600 $380,000 700 $470,000 B. Fixed Costs = $0; price = $80 Output Total Cost Marginal Cost 1 $40 2 $90 3 $150 4 $210 5 $280 6 $360 7 $450 8


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WMU ECON 2010 - Assignment

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