SI Review-11/24/13
1.
Cathy has started her own internet company. She sells leather belts that she makes herself. Categorize the
following expenses as fixed or variable:
- Paying someone to set up a web page for her
- Leather for the belts
- Rent for office in the city
- Pearls to decorate the belts
2.
You have the following information about quantity produced and total costs for a firm.
Quantity produced
Total Cost
FC
VC
AVC
ATC
0
30
1
35
2
45
3
60
4
80
5
105
MC
(i)
3.
Find fixed costs, variable costs, average variable cost, average total cost and marginal cost for the
firm.
(ii)
Illustrate in one graph the marginal cost, average variable cost and average total cost.
Company X has a fixed cost of production of $15. The relationship between variable costs and units
produced is as follows:
No of units produced
Variable cost
(i)
(ii)
0
$0
1
$15
2
$25
3
$35
4
$50
5
$70
Find total costs, average variable costs, average total costs and marginal costs.
Illustrate in a diagram the AVC, ATC, and MC curves.
4. Draw a graph of a monopoly where the competitive price is 4 dollars, the monopoly
price is 8 dollars, and the quantity produced is 3 units.
(i) Calculate the monopolist’s profit.
MARKET ANALYSIS REVIEW (SHOW ALL STEPS!!!!! IF YOU DON’T KNOW ALL THE STEPS,
LOOK IN YOUR NOTES)
5. COFFEE MARKET: an early frost destroys one third of the coffee harvest in South American.
6. LUXURY AUTOMOBILE MARKET: the economy goes into a long recession.
7. PERSONAL COMPUTER MARKET: Intel raises the price by 20% for its popular CPU chip.
8. STEEL INDUSTRY: researchers find new techniques for manufacturing steel, which use 25% fewer materials.
9. JUG WINE MARKET: the economy goes into a long expansion.
10. GASOLINE MARKET: the state sales tax on gasoline is eliminated.
11. CORN MARKET: The Dept. of Ag raises the support price of corn from $4.00 to $5.00 per bushel; before this
law takes hold, the going price of corn is $4.50.
12. CREDIT CARD MARKET: Congress passes a new usury law limiting the interest rate charged on credit cards
to 14%; before this law takes hold, the going interest rate was 12%.
13. MARKET FOR APARTMENTS: the city gov’t passes a new rent control ordinance, limiting the rent charged on
apartments to $500 per month; before this law takes hold, the going rent was $700 per month.
14. MARKET FOR RAW MILK: the Dept. of Ag increases the support price of raw milk from $13 to $14 per
hundred pounds; before this law takes hold, the going price of raw milk is $15 per hundred pounds.
15. The graph below shows demand and supply for 3-pound bags of apples.
(i)
(ii)
How much will be produced in a competitive market?
What will the price be?
16.
a. What is the price?
b. What is the level of output in the industry?
c. What is the firm’s output?
d. What are the firm’s profits per units?
e. What are total profits?
f. What is the breakeven price?
g. What is the shutdown price?
True/False
17. Wages and salaries paid to workers are an example of implicit costs of production.
18. Fixed costs plus variable costs equal total costs.
19. The ATC curve crosses the MC curve at the minimum of the MC curve.
20. The only requirement for a market to be perfectly competitive is for the market to have many buyers and sellers.
21. A firm maximizes profit when it produces output up to the point where marginal cost equals marginal revenue.
22. In a competitive market, firms are price takers.
23. Monopolists are price takers.
24. A monopoly is the sole seller of a product with no close substitutes.
25. A natural monopoly produces at the minimum MC.
26. Monopolistic competition is a market structure in which few firms sell similar products.
27. An oligopoly is a market structure in which many firms sell products that are similar but not identical.
28. The market for crude oil is an example of an oligopolistic market.
29. The unique feature of an oligopoly market is that the actions of one seller have a significant impact on the profits
of all the other sellers in the market.
30. The formula for ATC is AVC+AFC.