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Indicate how each of the following events would affect a firm’s indicated short run cost curves (i.e. would the
cited curve shift up, shift down, experience a movement along, or experience no change).
Hint: See pp. 8-12 in the Notes found in the Chapter 5 Student Package.

Slumping sales cause the firm to lay off workers.

ATC effect =

MC effect =

Wage rates decrease by 20 percent.

AFC effect =

MC effect =
1150chp5assignment1101.doc

Chapter 5 Assignment
1.

Fill in all the blanks in table below using the limited cost information provided. Hints: [1] If you know an
average, you should be able to calculate a total, [2] marginal cost reflects the cost of each additional unit [i.e. MC
= TC/Q = TC/1 = TC].
Hints: See the Key Concepts found in the Chapter 5 Student Package. See also TYU Problem 7 [in particular, the
calculation of average and marginal cost from the provided total cost information] in the Chapter 5 Student
Package.
Q
0
1
2
3

2.

TFC

TVC

TC
100

AFC
-

AVC
-

ATC
-

MC
-

40
20
90

30

Indicate how each of the following events would affect a firms indicated short run cost curves (i.e. would the
cited curve shift up, shift down, experience a movement along, or experience no change).
Hint: See pp. 8-12 in the Notes found in the Chapter 5 Student Package.
Slumping sales cause the firm to lay off workers.
ATC effect =
MC effect

=

Wage rates decrease by 20 percent.
AFC effect =
MC effect
3.

=

Fill in the blanks to make the following statements correct.
Hints: See pp. 144-162 in Chapter 5 of the course textbook. See also the Chapter Notes entitled The Short-Run
Behavior of Firm Productivity and Cost found in the Chapter 5 Student Package [pp. 5-12].
[a] The demand curve faced by a single firm in perfectly competitive industry coincides with the firms
________________curve and its __________________ curve.
[b] A perfectly competitive firms demand curve has a price elasticity of demand value equal to _____________.
[c] Total revenue is calculated by multiplying ___________and ____________. Average revenue is calculated
by dividing ____________by________________. Marginal revenue is calculated by dividing ___________
_______________ by _______________________.
[d] A firms loss when it produces no output is equal to its_______________.
[e] The shut-down price is the price at which the firm can just cover its________________.
[f] If the average variable cost of producing any given output level exceeds the price at which it can be sold,
then the firm should _____________________.
[g] The profit-maximizing level of output for a price-taking firm is the output at which _____________
and ______________are ____________.
[h] If a perfectly competitive firm is producing its profit-maximizing level of output and the price of its
output suddenly rises, then MR will be _________ when compared to MC and the firm should ________
output.
[i] The short-run supply curve for a perfectly competitive firm is that firms marginal cost curve for levels of
output where marginal cost exceeds__________________.
[j] If a firm is producing a level of output where MR equals MC but is suffering losses, we know that price is
below___________. This firm should continue to produce so long as price exceeds _________________.

[k] If a firm is earning profits, we know that price is above its ______________________.
4.

Kates Katering provides catered meals, and the catered meals industry is perfectly competitive. Kates machinery
costs $100 per day and is the only fixed input. Her variable cost is the wages paid to the cooks and the food
ingredients. The total cost [TC] associated with each level of output is given in the table below.
Quantity of Meals
0
10
20
30
40
50

TC
$100
300
400
580
800
1,100

ATC
-

AVC
-

MC
-

Hints: See the Chapter Notes entitled Short Run Profit Maximization and the Perfectly Competitive Firm
[pp. 12-15] in the Chapter 5 Student Package. See also TYU Problem 7 in the Student Package.
[a] Calculate the average total cost, the average variable cost, and the marginal cost for each quantity of
output [indicate your answers in the provided table].
[b] What Kates break-even price [provide a numerical answer]?
[c] What is Kates shutdown price [provide a numerical answer]?
[d] Suppose that the price at which Kate can sell catered meals is $21 per meal. In the short run, should she
produce or shut down? If she should produce, how much should be produced?
[e] Suppose that the price at which Kate can sell catered meals is $17 per meal. In the short run, should she
produce or shut down? If she should produce, how much should be produced?
[f] Suppose that the price at which Kate can sell catered meals is $13 per meal. In the short run, should she
produce or shut down? If she should produce, how much should be produced?
5.

Why might the price elasticity of supply for basic wooden chairs be more elastic than that for finely-crafted
wooden chairs?
Hint: See pp. 166-168 in Chapter 5 of the course text.

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