E202Exam2.9

E202Exam2.9 - TC = Q x ATC = (260 slices/day) ($1.18/slice)...

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Answer : The marginal cost of each of the first 6 air conditioners produced each day is less than $120, but the marginal cost of the 7 air conditioner is $140. So the company should produce 6 th air conditioners per day. Total revenue is price of 120 times quantity of 6 equals 720. Total cost is 510. Daily economic profit is total revenue minus total cost 720 - 510 = 210. 3. What is the profit-maximizing level of output and how much daily profit will the producer below earn if the price of pizza is $0.50/slice? Answer : Because price is less than the minimum value of AVC, this producer will shut down in the short run: produce quantity zero. Daily profits are a loss equal to fixed cost. Fixed cost is the difference between total cost and total variable cost.
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Unformatted text preview: TC = Q x ATC = (260 slices/day) ($1.18/slice) = $306.80/day and VC = Q x AVC = (260 slices/day) ($0.68/slice) = $176.80/day. So fixed cost = $306.80/day - $176.80/day = $130/day. This producers profit is thus -$130/day. Chapter 7 4. Suppose the demand for gasoline is P = 3.5 - (1/48) Q and the supply of gasoline is P = 1 + (1/48) Q. a. Graph the market for gasoline. What is the equilibrium price and quantity? Answer : Find equilibrium quantity by setting 3.5 - (1/48) Q = 1 + (1/48) Q, so (1/24) Q = 2.5 and Q = 60 gallons. Find equilibrium price by substituting Q = 60 into demand P = 3.5 - (1/48) Q = 3.5 - 60/48 = 3.5 - 1.25 = 2.25 so P = $2.25....
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