07 Jun Question Assignment 3: Chapters 7 and 8
Question
Assignment 3: Chapters 7 and 8
Due: 8/24
1. Joanne’s solar panel company’s production follows the cost schedule shown below.
Output
Fixed Cost
Variable Cost
Total Cost
Marginal Cost
Average Fixed Cost
Average Variable Cost
Average Total Cost
1
25
60
85
60
25.0
60.0
85.0
2
25
98
123
38
12.5
49.0
61.5
3
25
128
153
30
8.3
42.7
51.0
4
25
171
196
43
6.3
42.8
49.0
5
25
225
250
54
5.0
45.0
50.0
6
25
318
343
98
4.2
53.0
57.2
i. Over what range does Joanne’s solar panel company experience economies of scale? Briefly explain.
ii. Over what range does Joanne’s solar panel company experience diseconomies of scale? Briefly explain.
iii. Assume Joanne is selling in a perfectly competitive market. (Hint: referring to the graph in assignment 2 may be helpful)
i. Approximately, over what range of prices will Joanne decide to not produce a single solar panel? Briefly explain.
ii. Approximately, over what range of prices will Joanne decide to produce some solar panels while not making positive economic profit? Briefly explain.
iii. Over what range of prices will Joanne decide to produce some solar panels while making positive economic profit? Briefly explain.
2. Frank’s corn business has the following total cost function:, where q is acres of corn.
i. What is Frank’s short-run profit maximizing price and quantity (set up the profit function, but instead of using an actually value for price, use the variable P)?
ii. True or false: In a perfectly competitive market, Frank will be able to choose to sell at his profit-maximizing price. Briefly explain.
iii. If the price of an acre of corn is 100, what is the profit-maximizing quantity? Does Frank make positive economic profit selling this amount? Show your work.
iv. If the price of an acre of corn is 1000, what is the profit-maximizing quantity? Does Frank make positive economic profit selling this amount? Show your work.
3. Does long-run average cost increase or decrease if the firm experiences decreasing returns to scale? Briefly explain.
4. What is the difference between increasing returns to scale and economies of scale?
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