Ch24_inclassQs

# Ch24_inclassQs - What should she do? 3.) Amy is starting...

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MICROECONOMIC PRINCIPLES Chapter 24 - Questions for Class 1.) Fill in the chart below and then answer all of the questions that follow. Q P TR MR TC MC 0 15 10 1 15 20 2 15 28 3 15 38 4 15 50 5 15 65 a) Define marginal cost and marginal revenue: MR = MC = b) If this is a perfectly competitive market, what does an individual firm's demand curve look like? c) Are these short run or long run costs? How do you know? d) Find the profit maximizing output level that this firm will choose. Graph all relevant curves required to show this point on the graph below. Be sure to label the axes correctly. 2.) Micah has realized that her bottled water company is losing money and she is considering shutting down, but turns to you for advice. Her total fixed costs are \$500 (it is amazing how much capital it takes to bottle water!) and she is selling 100 bottles of water at \$2 each. Each bottle of water costs her \$2.50 to make so she is losing 0.50 on each bottle that she sells.

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Unformatted text preview: What should she do? 3.) Amy is starting her own business selling a new line of hair gel. She sells the hair gel for \$21 per bottle (marketing those high-maintenance folk). Below are the costs for various output levels that Amy faces. Answer the questions below: output 0 1 2 3 4 5 6 7 8 total cost 50 55 62 75 96 125 162 203 248 a) What is the profit maximizing level of output? Show on a graph and explain. b) What are Amys profits/losses at the profit maximizing level of output? Show on the graph above and explain how you solved for them. c) On a new graph, show the losses that Amy has if she stays open and the losses if she shuts down? d) Should Amy stay in business? Why or why not? 4.) Paul sells wallets at the market price of \$50 each. For this price, he sells 10 wallets per month and each wallet costs him on average, \$40 to make. Is Paul making any profits? If not, should he shut down?...
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## This note was uploaded on 12/13/2010 for the course ECON 201 taught by Professor Egger during the Fall '06 term at Towson.

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Ch24_inclassQs - What should she do? 3.) Amy is starting...

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