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Course Assignment Due On 5 December Part I: Essays Questions

The document outlines a course assignment that is due on December 5th. It includes 10 questions across two parts - essays and problem solving. The essays questions cover topics like economies of scale, demand curves for individual firms vs industries, long-run costs, diminishing returns, and price elasticity of demand. The problem solving questions involve calculating costs, revenues, elasticities, and profits using data in tables and cost functions. Students are asked to show their work and formulas for various questions.

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Abdo Salem9090
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Download as DOCX, PDF, TXT or read online on Scribd
141 views

Course Assignment Due On 5 December Part I: Essays Questions

The document outlines a course assignment that is due on December 5th. It includes 10 questions across two parts - essays and problem solving. The essays questions cover topics like economies of scale, demand curves for individual firms vs industries, long-run costs, diminishing returns, and price elasticity of demand. The problem solving questions involve calculating costs, revenues, elasticities, and profits using data in tables and cost functions. Students are asked to show their work and formulas for various questions.

Uploaded by

Abdo Salem9090
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Course Assignment

Due on 5 December
Part I: Essays questions:
1. State the distinction between economics of scale and diseconomies of scale.
2. In a perfectly competitive markets, what is the difference between the demand the
industry faces and the demand an individual firm faces?
3. Define the long-run cost. In light of the fact that businesses are operated day to day
in the short run, of what use of the concept of the long-run average cost to the
entrepreneur?
4. How does the law of diminishing marginal returns account for an eventually
increasing marginal cost curves for a firm in the short run?
5. Summarize the relationship between price elasticity of demand and marginal
revenue.

Part I: Problem solving questions:

1. Use the data underlying the following two tables: The top table shows this data
in production form; the bottom table assumes that capital costs $100/unit and
labor costs $100/unit.

Please fill in the tables, showing your formulas.

Labor Capital Output Average Product of Labor Marginal Product of Labor


0 10 0 ----- -----
1 10 30    
2 10 80    
3 10 140    
4 10 190    
5 10 230    
6 10 260    
7 10 280    
Show Your Formulas!

Output Fixed Costs Variable Costs Total Costs ATC AVC MC


0 $1000 0   ----- ----- -----
30 $1000 $200        
80 $1000 $400        
140 $1000 $600        
190 $1000 $800        
230 $1000 $1000        
260 $1000 $1200        
280 $1000 $1400        
Show Your Formulas!

2. Examine this table

Output (units) Average fixed cost Total cost


0 ---- SR200
5 SR40 300
10 20 380
20 10 420
40 5 520

a. Find the average variable cost at each level of production.


b. What is the marginal cost of increasing output from 10 to 20 units? From 20 to 40
units?
c. Find the average total cost at each level of production.

3. An economist estimated that the cost function of a single product firm is:

Total cost (Q) = 5.6+2.5Q+6.9Q 2


Based on this information, determine the following:
a. Fixed cost, variable cost and total cost of producing 3 units of output(Q)
b. Average fixed cost, average variable cost and average total cost of producing 3
units of output (Q).

4. A profit maximizing firm in a competitive market is currently producing 100 units of


output. It has average revenue of SR10, average total costs of SR8, and a fixed costs of
SR200.

a. What is its profit, marginal cost, and average variable cost?


b. Is the efficient scale of the firm more than, less than, or exactly 100 units?
5. You have a friend who earns SR100, 000 a year working for a collection agency. In a
bank he has SR800,000 that he inherited. He is earning 6 percent per year on that money.
He quits his job and buys a restaurant with the SR800, 000. At the end of the year, he
shows you her profits for the year. It indicates that the restaurant had a profit of SR120,
000. What do you think about that, do you think it is a good project?

6. Suppose that the price of salt per pound rises from 15 halalah to 17 halalah. The quantity
demanded decreases from525 pounds to 475 pounds per month, and the quantity supplied
increases from 525 pounds to 600 pounds per month.

a. Calculate the price elasticity of demand for salt.


b. Is the demand for salt price elastic or price inelastic?
c. Calculate the elasticity of supply for salt.
d. Is the supply for salt price elastic or price inelastic?

7. A firm in a perfectly competitive industry has total revenue of SR200, 000 per year when
producing 2000 units of output per year.

a. Find the firm’s revenue.


b. Find the firm’s marginal revenue.
c. Assuming that the firm is maximizing profits, what is the firm’s marginal cost?
d. If the firm is at long-run equilibrium, what are its short-run average cost?

8. Assume two drivers—Hamad and Fahad, each drive up to a gas station. Before looking
at the price, each places an order. Hamad says “I would like 10 liters of gas”, Fahad says
“I would like SR20 worth of gas”. What is each driver’s elasticity of demand? (2 points).

9. You are chief financial officer for a firm that sells digital music players. Your firm has
the following average total costs schedule:

Quantity Average total cost


500 Players SR200
501 Players SR201

Your current level of production is 500 devices, all of which have been sold.
Someone calls desperate to buy one of your music players. The caller offers you
SR600 for it. Should you accept the offer? Why or why not? Show your work.
10. Examine this information for a monopoly product.

Price Quantity
SR10.00 1000

8.00 2000

6.00 3000

4.00 4000

2.00 5000

.5 6000

a. Calculate total revenue.

b. Calculate marginal revenue.

c. What is the maximum output that the producer of this product would ever produce?

d. Why would this firm never produce more than the output amount in part (c)?

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