Susan quit her job as a teacher, which paid her $48,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest per year, which she also spent on equipment. For the past several months she has spent $1000 per month on ingredients and other variable costs. Also, for the past several months she has taken in $4700 in monthly revenue. What should Susan do in the short run and the long run? In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. In the short run, Susan should continue to operate her business, but in the long run, she will probably face competition from newly entering firms. In the short run, Susan should shut down her business, and in the long run, she should exit the industry. In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium.

Average Fixed cost Average Variable Cost Average Total Cost   Output   0         1  $   180.00  $ 135.00  $    315.00   2  $     90.00  $ 127.50  $    217.50   3  $     60.00  $ 120.00  $    180.00   4  $     45.00  $ 112.50  $    157.50   5  $     36.00  $ 111.00  $    147.00   6  $     30.00  $ 112.50  $    142.50   7  $     25.71  $ 115.70  $    141.41   8  $     22.50  $ 121.90  $    144.40   9  $     20.00  $ 130.00  $    150.00   10  $     18.00  $ 139.50  $    157.50       Table 1-a (continued)         Marginal Cost Price Total Revenue Marginal Revenue Output 0    $ 345.00     1    $ 300.00     2    $ 249.00     3    $ 213.00     4    $ 189.00     5    $ 165.00     6    $ 144.00     7    $ 126.00     8    $ 111.00     9    $…

Sally Statistics is implementing a system of statistical process control (SPC) charts in her factory in an effort to reduce the overall cost of scrapped product. The current cost of scrap is $X per month. If a 75% learning curve is expected in the use of the SPC charts to reduce the cost of scrap, what would the percentage reduction in monthly scrap cost be after the charts have been used for 6 months? (Hint: Model each month as a unit of production.)

Suppose that the production function takes the form X = min(10L, 5K) and that a competitive firm faces a wage rate of £60 per week and a weekly capital rental of £32. (a) How much must the firm spend to produce 100 units of output, and what is the average cost of production when X = 100? (b) What is the incremental cost of producing the 101st unit of output? (c) What happens to the cost of producing 100 units of output if the wage rate and the rental cost of capital rise by 25 per cent each? What happens to the average and marginal cost? (d) What happens to the cost of producing 100 units of output if the wage rate increases by £1, or if the cost of capital increases by £1?