23 Jul WHAT SHOULD WE EXPECT TO HAPPEN IN THE LONG RUN IN THIS INDUSTRY AS A RESULT OF THE CORRECT ANSWERS GIVEN IN PART (5)?
A. Consider an e Show more PLEASE ANSWER ALL PARTS OF ALL QUESTIONS THOUROUGHLY (WILL GIVE GOOD RATING-THANKS) A. Consider an entrepreneur who has decided to follow through on a business venture. He has quit his job where he was employed as a Medical Assistant earning $2500 a month and has decided to run this new business venture alone as the sole proprietor. He approaches a bank with his business idea and obtains a loan for the startup and purchases the equipment and machinery that he would need for the business including the purchase of a web address and design for his business he also takes out a 2 year lease on a building and adjoining property with paid utilities at an excellent location and contracts with suppliers to provide him with raw materials on a six month basis at discounted bulk purchase rates. His total fixed costs on a monthly basis for this venture which includes his forgone earnings from his previous job are $7500. He now needs to hire workers to operate the machines handle orders etc. and he needs at least 5 workers to begin production. Having taking ECON 2020 while in college he computes the total product function for his business on a monthly basis given the quantity of other resources he has in the short run as follows: Quantity of Labor (Number of workers) Total Product (Output) 5 200 10 450 15 800 20 1100 25 1300 30 1400 1. First assume no other information on the profitability of this venture what is the implied profit expected by the entrepreneur each month? Explain 2. Obtain the marginal physical product of this business graph the function and provide an intuitive explanation for the shape of the function. 3. Now suppose each worker hired is paid $10/hr in wages and works 150 hours each month. Obtain the monthly total variable total fixed and total cost functions for this business if it produces at the various output levels in the table above (i.e. fill out the table below and show all necessary work below) Output (Q) Total Fixed Cost Total Variable Cost Total Cost 200 450 800 1100 1300 1400 4. The entrepreneur knows that his business is producing in an environment of perfect competition and as a result the market determined price after his entry into the business is $37.50 for each unit of the product that he sells. Determine the firms monthly profit maximizing (or loss minimizing) output level using the profit maximizing rule 5. From (4) is this firm making any excess (economic) profits in the short run? Explain. Compute the firms monthly profits (or losses) at the profit maximizing output level 6. What should we expect to happen in the long run in this industry as a result of the correct answers given in part (5)? Explain. Show less
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