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Chapter 7: Problem 3 on page 162. Chapter 8: Problem 4, a through f, on pages 179–180. Chapter 9: Problem 2 on page 193. Chapter 7 3. You are a newspaper publisher. You are in the middle of a one-year...

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  • Chapter 7: Problem 3 on page 162.
  • Chapter 8: Problem 4, a through f, on pages 179–180.
  • Chapter 9: Problem 2 on page 193.

Chapter 7
3. You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $500,000 per month, and you have contractual labor obligations of $1 million per month that you can't get out of. You also have a marginal printing cost of $.25 per paper as well as marginal delivery cost of $.10 per paper. If sales fall by 20% from 1 million papers per month to 800,000 papers per month, what happens to the AFC per paper, the MC per paper, and the minimum amount that you must charge to break even on these costs?
Chapter 8
4. Assume the following cost data are for a purely competitive producer:
Total
Product
Average
fixed
cost
Average
variable
cost
Average
total
cost
Marginal
cost
0 $45
1 $60.00 $45.00 $105.00 40
2 30.00 42.50 72.50 35
3 20.00 40.00 60.00 30
4 15.00 37.50 52.50 35
5 12.00 37.00 49.00 40
6 10.00 37.50 47.50 45
7 8.57 38.57 47.14 55
8 7.50 40.63 48.13 65
9 6.67 43.33 50.00 75
10 6.00 46.50 52.50

a. At a product price of $56, will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic profit or loss will the firm realize per unit of output?
b. Answer the questions of 4a assuming product price is $41.
c. Answer the questions of 4a assuming product price is $32.
d. In the table below, complete the short-run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3).
(1)
Price
(2)
Quantity
supplied,
single firm
(3)
Profit (+)
or loss (l)
(4)
Quantity
supplied,
1500 firms
$26 $
32
38
41
46
56
66

e. Now assume there are 1500 identical firms in this competitive industry; that is, there are 1500 firms, each of which has the same cost data shown in the table. Complete the industry supply schedule (column 4).
f. Suppose the market demand data for the product are as follows:
Price
Total
quantity
demanded
$26 17,000
38 15,000
38 13,500
41 12,000
46 10,500
56 9,500
66 8,000

What will be the equilibrium price? What will be the equilibrium output for the industry? For each firm? What will profit or loss be per unit? Per firm? Will this industry expand or contract in the long run?
Chapter 9
2. A firm in a purely competitive industry is currently producing 100 units per day at a total cost of $450. If the firm produced 800 units per day, its total cost would be $275. What are the firm’s ATC per unit at these three levels of production? If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? From what you know about these firms’ cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm’s accounting profit per unit be?
Answered Same Day Dec 22, 2021

Solution

Robert answered on Dec 22 2021
126 Votes
 Chapter 7: Problem 3 on page 162.
 Chapter 8: Problem 4, a through f, on pages 179–180.
 Chapter 9: Problem 2 on page 193.
Chapter 7
3. You are a newspaper publisher. You are in the middle of a one-year rental contract for your
factory that requires you to pay $500,000 per month, and you have contractual labor
obligations of $1 million per month that you can't get out of. You also have a marginal
printing cost of $.25 per paper as well as marginal delivery cost of $.10 per paper. If sales
fall by 20% from 1 million papers per month to 800,000 papers per month, what happens to
the AFC per paper, the MC per paper, and the minimum amount that you must charge to
eak even on these costs?
Answer:
First we derive total fixed cost. Total fixed cost = monthly rent + labor obligation =
500000+1000000 = $1500000
Average fixed cost when sales was 1 million = 1500000/1000000 = $1.5
Average fixed cost when sales was 800000 million = 1500000/800000 = $1.875
We note that as sales fall from 1 million to 800000 papers per month, average fixed
cost increases.
Marginal cost per paper = marginal printing cost + marginal delivery cost =
0.25+0.10 = $0.35
The marginal cost per paper is fixed at $0.35. So decline in sale would have no
effect on the MC per paper.
Effect on
eak-even price:
At the
eak-even point, total revenue equals total cost.
When sales = 1 million or 1000000, total revenue = 1000000*P, where P denote
price of product
And total cost = total fixed cost + marginal cost per paper*number of paper =
1500000 + 0.35*1000000 = $1850000
So when sales = 1 million paper, the
eak-even price is given as;
1000000*P = 1850000, implies
eak-even price (when sale is 1 million) = $1.85
When sales have fallen to 800000 units, total revenue = 800000*P
And total cost = total fixed cost + marginal cost per paper*number of paper =
1500000 + 0.35*800000 = $1780000
So when sales = 800000 million paper, the
eak-even price is given as;
800000*P = 1780000, implies
eak-even price (when sale is 1 million) = $2.225
Hence we note that...
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