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microbook_3e-page122

# microbook_3e-page122 - Homework#8 modifications of Problems...

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Homework #8 modifications of Problems 4, 5, 6, 9 and 11 from Ch. 9, p. 228-29 of Krugman/Wells Microeconomics (1st ed.) 4. Bob produces DVD movies for sale, which requires only a building and a machine that copies the original movie onto a DVD. Bob rents a building for \$30,000 per month and rents a machine for \$20,000 a month. Those are his fixed costs. His variable cost is given in the accompanying table. fixed cost variable cost total cost qty. of DVDs total avg. total avg. total avg. marginal cost 0 \$50,000 – – \$0 – – – – – – 1,000 \$50,000 \$5,000 2,000 \$50,000 \$8,000 3,000 \$50,000 \$9,000 4,000 \$50,000 \$14,000 5,000 \$50,000 \$20,000 6,000 \$50,000 \$33,000 7,000 \$50,000 \$49,000 8,000 \$50,000 \$72,000 9,000 \$50,000 \$99,000 10,000 \$50,000 \$150,000 a. Calculate Bob’s average variable cost, average total cost, and marginal cost for each quantity of output. b. There is free entry into the industry: anyone who enters will face the same costs as Bob. Suppose that currently the price of a DVD is \$23. What will Bob’s profit be? Is this a long-run equilibrium? If not, what
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