# Econ11MidtermAnswersFall2007 - A. Yezer THE GEORGE...

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THE GEORGE WASHINGTON UNIVERSITY Department of Economics A. Yezer Economics 11 Midterm Examination Answers Fall 2007 Answers supplied in conformance with the GWU code of academic conduct by _ Anthony Yezer ____________ Bonus Question: If Remington Firearms Co. merged with John Deer Inc., the resulting firm might be called ___ Dead _______ ___ Deer __________. 2. The table below shows short run total daily costs of producing loaves of bread at Bill's Bread Bakers. If Bill is a price taker and the price of bread is \$12 per dozen loaves, Bill will produce ___ 6 dozen ___ loaves per day and generate economic profit of \$__ 10 ____ per day. If price falls to \$6 per dozen loaves, Bill will produce __ 3 ___ loaves per day and generate economic profit of \$_ -14 ___ per day. (show your work) Dozens of Loaves 0 1 2 3 4 5 6 7 8 Total Costs in \$ 20 22 26 32 40 50 62 76 92 Marginal Cost 2 4 6 8 10 12 14 16 The necessary condition (Golden Rule) to maximize profit. So your FIRST step must be to compute marginal cost as shown in the bottom row. Then choose output to maximize profit by setting P = MC = 12 and learn that profit is maximized when when Loaves = 6 dozen, total revenue = 12 x 6 = 72, and profit = TR – TC = 72 – 62 = 10. When Price = 6, P = 6 = MC when Loaves = 3. Economic profit = TR – TC = 18 – 32 = - 14, TFC = 20, so produce because it is better to have Profit = -14 than –20. 3. Many Ramirez is thinking of opening a baseball school that would produce revenues of \$12,000,000 compared with expenditures of \$6,000,000 per year. The school would require a \$4,000,000 investment and Ramirez would give up his \$5,000,000 annual salary as a left fielder. If rate of return on investments is generally 20%, Many will earn economic profit of \$_ 200,000 ___ if he opens the baseball school. Explain briefly.

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## This test prep was uploaded on 04/18/2008 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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Econ11MidtermAnswersFall2007 - A. Yezer THE GEORGE...

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