Explain implicit and explicit costs as applied to profit. Include examples to support your explanation. 2. Explain âTotal costs increases as output expands. But the rate of cost increase varies.â Explain with an example. 2. Explain, âFor perfectly competitive firms, profits are maximized at the rate of output where price equals marginal costâ Remember profit is considered a cost. Explain with an example. 3. Explain why supply is affected by: 1. The price of factor inputs-labor, capital, resources. 2. Technology â for example computers and robots. 3. Expectations- what is going to happen with the demand for the product thus supply. Ex. a recession 4. Taxes and subsidies-include examples. 5. If one firm making and selling X product and is earning excessive profits how will the eventually effect the market price and the supply of the product? Page 519
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The following questions address some of the price and output decisions faced by firms other than those found in perfect competition. Some numbers may be rounded.
Table 1
| Output | Average Fixed cost | Average Variable Cost | Average Total Cost | Marginal Cost | Price | Total Revenue | Marginal Revenue |
| 0 | $ 345.00 | ||||||
| 1 | $ 180.00 | $ 135.00 | $ 315.00 | $ 300.00 | |||
| 2 | $ 90.00 | $ 127.50 | $ 217.50 | $ 249.00 | |||
| 3 | $ 60.00 | $ 120.00 | $ 180.00 | $ 213.00 | |||
| 4 | $ 45.00 | $ 112.50 | $ 157.50 | $ 189.00 | |||
| 5 | $ 36.00 | $ 111.00 | $ 147.00 | $ 165.00 | |||
| 6 | $ 30.00 | $ 112.50 | $ 142.50 | $ 144.00 | |||
| 7 | $ 25.71 | $ 115.70 | $ 141.41 | $ 126.00 | |||
| 8 | $ 22.50 | $ 121.90 | $ 144.40 | $ 111.00 | |||
| 9 | $ 20.00 | $ 130.00 | $ 150.00 | $ 99.00 | |||
| 10 | $ 18.00 | $ 139.50 | $ 157.50 | $ 87.00 |
Questions:
- Complete Table 1. Summarize your calculations and use Microsoft Excel.
- Using Excel, draw one graph showing average fixed costs, average variable costs, average total costs, marginal revenue, and marginal costs.
- Using the data in the table and on your graph, what is the profit maximizing, or loss minimizing level of output? Explain and justify your answers.
- What is a normal profit? What is an economic profit? Explain your answer using examples. Are normal profits being earned in this example? Are economic profits present for this firm in this example? Explain your answers.
- Given the data in the table and the graph, how could you determine or identify the optimal plant size?
- What is the difference between explicit and implicit cost? Explain your answers.
- How would we determine if a cost is a fixed cost or a variable cost?
Present your analysis in Microsoft Excel format. Enter non-numerical responses in the same worksheet using textboxes. If you want to learn how to use Microsoft Excel to create curves, refer to the Microsoft Excel tutorials.
