Question Unit 7 Assignment: Perfect Competition and The Supply Curve

05 Jun Question Unit 7 Assignment: Perfect Competition and The Supply Curve

Question
Unit 7 Assignment: Perfect Competition and The Supply Curve

Name:

1. Joe Brown’s dairy operates in a perfectly competitive marketplace. Joe’s machinery costs $500 per dayand is the only fixed input. His variable costs are comprised of the wages paid to the few workers he employs at the dairy and the grain he feeds to his dairy cows.

The variable cost associated with each level of output is given in the accompanying table.

Gallons of Milk

Variable Cost

0

–

1000

$ 2,100

2000

$ 2,200

3000

$ 2,900

4000

$ 3,680

5000

$ 5,180

a. Calculate the total cost, the marginal cost per unit, the average variable cost, and the average total cost, for each quantity of output.

Gallons

of Milk

FC

VC

TC

MC

AVC

ATC

0

$500

–

–

–

–

1000

500

$ 2,100

2000

500

$ 2,200

3000

500

$ 2,900

4000

500

$ 3,680

5000

500

$ 5,180

b. What is the break-even price?

c. What is the shut-down price?

d. Suppose that the price at which Joe can sell milk is $1.50 pergallon. In the short run, will Joe earn a profit?

e. In the short run, should he produce or shut down?

f. Now suppose that the price at which Joe can milk is $1.00 pergallon. In the short run, will Joe earn a profit?

g. In the short run, should he produce or shut down?

h. Finally, Suppose that the price at which Joe can sell milk is $0.75 pergallon. In the short run, will Joe earn a profit?

i. In the short run, should he produce or shut down?

Chapter 14 / MONOPOLY

2.