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18 May 2018

Use the information below to answer the following question. Fact 2 Franklin is a fiddlehead farmer. He sold 10 bags of fiddleheads last month, with total fixed cost of $100 and total variable cost of $50. 48) Refer to Fact 2. Suppose the price of fiddleheads is expected to stay at $10 per bag for the foreseeable future, and Franklin's production and cost figures are expected to stay the same. His total fixed cost consists entirely of rent on land, and his five-year lease on the land runs out at the end of the month. Should Franklin renew the lease? A) Yes, because total revenue will still cover total fixed cost. B) Yes, because total revenue will still cover total variable cost and a portion of total fixed cost. C) No, because in the long run, zero economic profit is a signal to move factors of production out of fiddlehead farming. D) No, because total revenue must cover all costs for factors of production to remain in fiddlehead farming in the long run. E) insufficient information to answer

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18 May 2018

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A farmer is producing where MC = MR. Say that half of the cost of producing wheat is the rental cost of land (a fixed cost) and half is the cost of labor and machines (a variable cost). If the average total cost of producing wheat is $26 and the price of wheat is $10, what would you advise the farmer to do? (âGrow something elseâ is not allowed.)

a. In the short run, the farmer should shut down because he is making a net loss. By producing he will lose $16 per unit, but if he did not produce he would simply have zero profit.

b. The farmer should reduce output so that average total costs would decline.

c. The farmer should increase the price at which he sells wheat to $26.

d. In the short run, the farmer should still grow wheat because by producing he will lose $16 per unit, but if he did not produce he would lose $13 per unit. In the long run, the farmer will go out of business.

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 $2,500 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 $7,500.

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 firm's 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 firm's 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.

blushcamel945

II. Mr. I.M Farmer has been producing 500 acres of irrigated cotton in the Texas High Plains. He is very concerned about increasing fuel costs because he uses a lot of fuel to pump irrigation water. He is also concerned because he believes that the price of cotton could drop to 58 cents per pound. He is not sure that he can profitably produce cotton if the price falls to 58 cents or less.

Assume you have been asked to analyze this problem. With the help of an extension agent, you developed the following cost schedule for irrigated cotton at various levels of production. All costs were figured on a per-acre basis. Fixed costs are $110 per acre. Total variable costs per acre are listed in the chart below.

Mr. Farmer has asked you to compute the profit-maximizing level of production and the amount of profit he can expect at various cotton prices. He particularly wants advice about whether or not he should produce any cotton at all if the price drops to 58 cents per pound. (Assume I. M. Farmer has no alternative to cotton; that is he either produces cotton or nothing.)

1. What is the most profitable cotton yield if the price is 80 cents per pound? What is the profit or loss per acre?

Yield_________________________________

Profit/Loss_________ _______________

2. a) If the price does fall to 58 cents per pound, should Mr. Farmer produce any cotton?

( ) Yes ( ) No

If yes, profit maximizing yield per acre___________________

Profit/loss per acre______ ______

b) How much would Mr. Farmer lose if he did not produce any cotton some year?

Loss per acre_____________________

3. If the expected price is only 40 cents per pound, should Mr. Farmer try to produce anything?

( ) Yes ( ) No

If he does produce, how much? ______ ___________lbs per acre.

What would Profit/Loss be if he produces? __ ________(per acre)

4. What is the lowest price that Mr. Farmer can receive and just cover all his costs? At what yield?

Price_________ _________________

Yield_________ ___________________

Profit/Loss_____ ____________(per acre)

5. At what price will Mr. Farmer stop producing? ____ ___________

Total Product (lbs./acre)	Total variable cost	Total fixed cost	Total cost	Average Cost Per Lb.			Marginal cost	Marginal Revenue
Total Product (lbs./acre)	Total variable cost	Total fixed cost	Total cost	Fixed	Variable	Total	Marginal Cost	Marginal Revenue
200	65.80	110	175.8	.55	.33	.88	.224	.58
250	77.00	110	187	.44	.31	.75	.073	.58
300	80.68	110	190.68	.36	.27	.63	.14	.58
350	87.59	110	197.59	.314	.25	.56	.15	.58
400	94.94	110	204.94	.28	.24	.52	.18	.58
450	103.80	110	213.8	.24	.23	.47	.23	.58
500	115.30	110	225.30	.22	.23	.45	.02	.58
550	133.30	110	243.30	.20	.24	.44	.36	.58
600	155.55	110	265.55	.18	.26	.44	.45	.58
650	182.80	110	292.80	.17	.28	.45	.56	.58
700	215.55	110	325.55	.16	.31	.47	.66	.58
750	254.30	110	364.30	.15	.34	.49	.78	.58
800	295.80	110	405.8	.14	.37	.51	.83	.58