In this Assignment, you will define and calculate the remaining six major cost elements of a business, when given the Total Costs and the Quantity Produced, as well as to use the computed costs to determine a minimum cost output level for that business. In addition, you will compute both the break-even price and the shut-down price for a hypothetical business in a perfectly competitive market, and determine if that business would incur an economic profit at various market prices, and should the firm continue to produce at each of those price levels. 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 light bulbs produced in an hour Total Cost Variable Costs Average Variable Costs Average Total Costs Average Fixed Cost 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 4.a. 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.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

In this Assignment, you will define and calculate the remaining six major cost elements of a business, when given the Total Costs and the Quantity Produced, as well as to use the computed costs to determine a minimum cost output level for that business. In addition, you will compute both the break-even price and the shut-down price for a hypothetical business in a perfectly competitive market, and determine if that business would incur an economic profit at various market prices, and should the firm continue to produce at each of those price levels.

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 light bulbs produced in an hour

Total Cost

Variable Costs

Average Variable Costs

Average Total Costs

Average Fixed Cost

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 4.a.

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.

 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 1 images

Blurred answer
Knowledge Booster
Cost Function
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education