hw06key

# hw06key - and average total cost at this level of...

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BINGHAMTON UNIVERSITY Department of Economics Principles of Microeconomics (Econ 160B) Homework #6 Answer Key 1. Complete the table below. 2. Complete the table below.

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3. Comment on the following statement: "The shape of the long-run average cost curve is determined by diminishing returns." The statement is false. Diminishing returns occurs in the short run, as the firm adds units of a variable input to a fixed input. In the long run, there are no fixed inputs. Thus, the shape of the long-run average cost curve depends on how costs are affected by changes in the firm's scale of production. 4. Maxine's Cookie Shop sells chocolate chip cookies in a perfectly competitive market for \$2 per dozen. Maxine currently produces 200 dozen cookies per day
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Unformatted text preview: and average total cost at this level of production is \$1.75. What level of profit is this firm earning? Explain. Maxine's Cookie Shop is earning profits of \$50 per day. This can be calculated by taking total revenue (\$2 x 200 = \$400) and subtracting total cost (\$1.75 x 200 = \$350). 5. Consider a competitive firm that produces tomatoes. The fixed costs are \$10 per bushel and the relationship between TVC (total variable cost) and output is shown in table below. Compute SAVC (short-run average variable cost) and SMC (short-run marginal cost). How much output will be supplied if P = \$45 and the firm wants to maximize profits? Output = 2 if P = \$45, since this is the output level at which the price equals marginal cost....
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hw06key - and average total cost at this level of...

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