Problem Set 7

# Problem Set 7 - Econ 221 Key to Practice Problem Set...

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Econ. 221 Key to Practice Problem Set 7 (Chapter 11) 1. In each case indicate whether (i) the firm should produce in the short run, (ii) should shut down in the short run, or (iii) additional information is needed to determine the action in the short run. a. TC > TR at all output levels -- additional information needed b. TVC > TR at all output levels -- firm should shut down in short run c. TR > TFC at all output levels -- additional information needed d. MR > MC at current output level -- additional information needed e. P > ATC at all output levels -- firm should produce in short run f. AVC > P at all output levels -- firm should shut down in short run. g. ATC > P at all output levels -- additional information needed 2. Use the diagram below to answer the following questions. Provide numerical values for all questions. a. What is the average variable cost of production at Q=250 units? \$22 b. What is the average total cost of production at Q=250 units? \$26 c. What is the average fixed cost of production at Q=250 units? \$4 d. What is the fixed cost of production?

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Problem Set 7 - Econ 221 Key to Practice Problem Set...

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