ECON 2000 Chapter : Chapter 8 Summary

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azuremammoth471

15 Mar 2019

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This half of the summary is on exam 2: profit-maximizing firms make decisions to maximize profit. Tr-tc: to calculate production costs, firms must know two things: a. ) the quantity & combo of inputs they need to produce their product b. ) the cost of those inputs. Costs in the short run p. 168: fixed costs are costs that do not change w/ a firms output. In the sr, firms cannot avoid fixed costs or change them, even if production is 0: variable costs are those costs that depend on the level of output chosen. Fixed costs plus variable costs equal total costs. Tc = tfc+tvc: average fixed cost (afc) is total fixed cost divided by the quantity of output. Afc steadily b/c the same total is being spread over a larger & larger quantity of output. Afc = tfc: numerous combos of inputs can be used to produce a given level of output.

Related Questions

Production/Cost Exercises 1. The following is a short-run production table for a firm with labor as its only variable input. Wage = $ 310 Capital = 100 Capital Price= $20 Product Price= $65

Labor Output

0 0

1 50

2 110

3 160

4 200

5 230

6 250

7 260

8 265

9 260

10 250

A. Determine the following measures at all levels of output: MPL, APL, TFC, TVC, TC, TR, AVC, ATC, AFC, MC, PROFIT.

B. At what level of output is the profit maximized?

C. What kind of observations can you make about MC, price, average total cost, and profit?

ceruleanmosquito986

I need a step by step solution for the following.

A manufacturing plant has a potential production capacity of 1,000 units per month (capacity can be increased by 10 percent if subcontractors are employed). The plant is normally operated at about 80 percent of capacity. Operating the plant above this level significantly increases variable costs per unit because of the need to pay the skilled workers higher overtime wage rates. For output levels up to 80 percent of capacity, the variable cost per unit is $100. Above 80 percent and up to 90 percent, variable costs on this additional output increase by 10 percent. When the output is above 90 percent and up to 100 percent of capacity, the additional units cost an additional 25 percent over the unit variable costs for outputs up to 80 percent of capacity. For production above 100 percent and up to 110 percent of capacity, extensive subcontracting work is used and the unit variable costs of these additional units are 50 percent above those at output levels up to 80 percent of capacity. At 80 percent of capacity, the plant's fixed costs per unit are $50. Total fixed costs are not expected to change within the production range under consideration. Based on the preceding information, complete the following table.

Q	TTC	TFC	TVC	ATC	AFC	AVC	MC
500
600
700
800
900
1000
1100

tealshark78

Redstone Clayworks Inc. is located in Sedona, Arizona, and manufactures clay fire pits for patios. They are one of about two dozen firms around the world that manufacture and sell clay fire pits for retailers such as Home Depot, Lowe's, Front Gate, and other upscale home product chains. There is virtually no product differentiation. A clay fire pit is a clay fire pit.

The spreadsheet below gives some of Redstone's production cost data.

Assume that the world market demand and supply curves for clay fire pots intersect at $190 per unit.

Q	TC	TFC	TVC	AFC	AVC	ATC	SMC	TR	MR	Profit	Average	Profit
											Profit	Margin
0	7000	7000	NIL	NIL	NIL	NIL	NIL	0	NIL	-7000	NIL	nil
100	14000	7000	7000	70	70	140	70	19000	190	5000	50	26%
200	23000	7000	16000	35	80	115	90	38000	190	15000	75	39%
300	32000	7000	25000	23.33	83.33	106.67	90	57000	190	25000	83.33	44%
400	43000	7000	36000	17.5	90	107.5	110	76000	190	33000	82.5	43%
500	52000	7000	45000	14	90	104	90	95000	190	43000	86	45%
600	74000	7000	67000	11.67	111.67	123.33	220	114000	190	40000	66.67	35%
700	97000	7000	90000	10	128.57	138.57	230	133000	190	36000	51.43	27%
800	111000	7000	104000	8.75	130	138.75	140	152000	190	41000	51.25	27%
900	132000	7000	125000	7.78	138.89	146.67	210	171000	190	39000	43.33	23%
1000	152000	7000	145000	7	145	152	200	190000	190	38000	38	20%

AFC = total fixed cost/total output.

AVC = total variable cost/total output.

ATC = total cost/total output.

MC = change in total cost/change in output.

Total revenue = price * quantity. And given that the demand and supply intersect at $190, which implies that the equilibrium price is $190 because the point where the demand equals the supply determines the price.

MR = change in total revenue/change in output.

Profit = total revenue - total cost.

Average profit = total profit/total output.

Profit margin = total profit/total revenue*100 or (revenue - cost)/revenue*100.

Question:

a. What level of output should the manager of Redstone choose to produce? Explain your choice in 50-100 words.

b. Make a copy of your spreadsheet and triple the fixed costs to 21,000. How does this change your answer to question a? Explain your result in 50-100 words.

whitehound166

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