Numerical Cost Problem

Econ 2023

Part I.

Costs and Output

Output Total Cost Total Fixed Cost Total Variable Cost Average Total Cost Average Variable Cost Marginal Cost
1 $200
2 $250
3 $309
4 $384
5 $470 $120
6 $600
7 $875
8 $1176

1. Complete the Table.

2. At what output is ATC at a minimum?

3. At what output are diminishing marginal returns encountered?

4. Graph the firm's ATC, AVC, and MC curves.

5. Suppose that the selling price for good is $120. How many will the firm produce in order to maximize profits (minimize loss)? At this level of output compute the firm's profit or loss.

6. Suppose that the selling price for the good is $62. How many will the firm produce in order to maximize profits (minimize loss)? At this level of output compute the firm's profit or loss.

7. Suppose that the selling price for the good is $80. How many will the firm produce in order to maximize profits (minimize loss)? At this level of output compute the firm's profit or loss.

Part II

Tim is harvesting night crawlers on his farm in Guymon to use as fishing bait. Tim uses a variety of fixed inputs (land, machines, etc), the fixed costs of which are $250. The only variable input is his labor which Tim hires ar $100 per day.

Daily Labor Input Total Product (bushels/day) Marginal Product (bushels/day) Marginal Cost (dollar/bushel) Total Cost

(dollars/day)

1 30
2 70
3 100
4 120
5 135
6 145
7 150

1. Complete the table.

2. On a piece of graph paper, plot the marginal product curve and the marginal cost curve. Does marginal cost rise when marginal product falls? Explain your answer.

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