(TCO A) Suppose you are hired to manage a small manufacturing facility that produces Widgets.
(a.) (15 points) You know from data collected on the Widget Market that market demand and market supply have both increased recently. As manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility?
Remember that supply and demand are about the market supply and market demand, which is bigger than your own company. You are being given data on supply and demand for the whole market and are being asked what effect that has on you as a small part of that market.
(b.) (15 points) Now, suppose that following the supply and demand changes in (a), a substitute good goes up in price, and your costs of production increase. What new decisions will you make regarding production levels and pricing for your Widget facility?
(TCO B) Here is some data on the demand for marshmallows:
$ 8 300
$ 6 700
$ 4 1300
$ 2 2200
(a.) (15 points) Is demand elastic or inelastic in the $6-$8 price range? How do you know?
(b.) (15 points) If the table represents the demand faced by a monopoly firm, then what is that firm’s marginal revenue as it increases output from 1300 units to 2200 units? Show all work. (Be careful here!)
(TCO C) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.
Workers Labor Cost Output Revenue
1 $500 100 $700
2 1000 280 1150
3 1500 440 1440
4 2000 540 1570
5 2500 600 1670
6 3000 630 1710
7 3500 640 1730
(a.) (6 points) What is the marginal product of the second worker?
(b.) (6 points) What is the marginal revenue product of the fourth worker?
(c.) (6 points) What is the marginal cost of the first worker?
(d.) (12 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.
(TCO C) Answer the next questions on the basis of the following cost data for a firm in pure competition:
OUTPUT ------ TFC ---------- TVC
0 $100.00 0.00
1 100.00 70.00
2 100.00 120.00
3 100.00 150.00
4 100.00 200.00
5 100.00 270.00
6 100.00 360.00
(a.) (15 points) Refer to the above data. If the product price is $45 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.
(b.) (15 points) Refer to the above data. If the product price is $75 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.
(TCO D) A software producer has fixed costs of $18,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below:
Q TVC Price
1,000 $15,000 $25
2,000 20,000 24
3,000 30,000 23
4,000 50,000 22
5,000 80,000 20
(a.) (15 points) If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above? Why? (Show all work).
(b.) (15 points) What should be the production level if fixed costs rose to $48,000 per month? Explain.