ECON 705 Module 5 Assignment
1. You collect the following production data for
your firm:
|
Q |
L |
||
|
264 |
2 |
||
|
1,319 |
6 |
||
|
515 |
3 |
||
|
74 |
1 |
||
|
1,642 |
9 |
||
|
1,049 |
5 |
||
|
1,445 |
7 |
||
|
714 |
4 |
||
|
1,208 |
11 |
||
|
1,539 |
10 |
2. Straker Industries estimated its short-run costs using a
U-shaped average variable cost function of the form .0/msohtmlclip1/01/clip_image002.gif”> and obtained
the following results. Total fixed cost
(TFC) at Straker Industries is $1,030.
|
Adjusted R |
0.815 |
|||
|
|
Coefficients |
Standard Error |
t Stat |
P-value |
|
Intercept |
34.62 |
1.99 |
17.40 |
0.0033 |
|
Q |
-3.65 |
0.44 |
-8.36 |
0.0000 |
|
Q^2 |
0.18 |
0.02 |
8.92 |
0.0000 |
a. What level of output (Q) is associated with
the minimum AVC? What is the value of AVC at this minimum?
b. Determine equations for ATC, TC, and SMC.
Graph one scatterplot of Q vs. TC, and another scatterplot of Q vs. ATC, AVC,
and SMC.
c. When output is 14, how much is TC, AVC, ATC,
and SMC?
d. At what amount of output does labor change
from exhibiting increasing returns to decreasing returns?
3. Coffee shops in a large city
would appear to be examples of competitive markets: there are numerous relatively
small sellers, each seller is a price-taker, and the products are quite
similar.
a. How could you argue that this market is not competitive?
b. Could each coffee shop face a demand curve
that is not perfectly elastic?
c. How profitable do you expect coffee shops to
be in the long run?
4. Suppose the market demand and
supply functions are QD = 180 – 1.5P and QS = 3.5P + 40.
You have just graduated and moved to this city; as a new MBA and an
entrepreneur, you are considering entering the market for this product.
a. Determine the equilibrium price and quantity
in this market.
b. You’ve researched and found that most firms
in the market currently experience costs such that TC = 15 + 45Q – 10Q2
+ 1.5Q3. Determine whether or not you should enter this market. Use
graphs to support your answer.
c. Due to unforeseen delays, you don’t enter the
market. However, a year later the market supply has changed to QS = 3.5P
+ 10. Are you surprised at this shift in supply?
d. Given the new supply conditions, determine
whether or not you should enter the market.
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