E202PracticeExam2.8

E202PracticeExam2.8 - Answer: The marginal cost of each of...

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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. 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 producer’s profit is thus -$130/day. Chapter 7
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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