Goodlife Corp. manufactures good X for both domestic and international consumers. The management is planning to increase production at its existing facilities to meet the increasing demand from its international customers. Lauren Whittle, the operations head, was asked to submit a report to the board of directors regarding the daily cost of production. The table given below lists the changes in the total cost, when production is increased from zero to ten units in a day. Units of Output Total Cost (in dollars) 0 54 1 64 2 71 3 79 4 84 5 88 6 90 7 96 8 104 9 117 10 137 Which of the following can most reasonably be concluded from the information provided by Lauren? A. Diminishing marginal returns sets in when the firm continues to produce beyond the sixth unit. B. The average cost of production is equal to the marginal cost of production at five units of output. C. The average cost of production begins to increase at the seventh unit of output. D. The marginal cost curve is negatively sloped up to five units of output and slopes upward thereafter. E. The marginal cost of production exceeds the average cost of production for the sixth and the seventh units of output.
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Assume the following cost data are for a purely competitive producer: $$\begin{array}{ccccc} \hline \begin{array}{c} \text { Total } \\ \text { Product } \end{array} & \begin{array}{c} \text { Average } \\ \text { Fixed cost } \end{array} & \begin{array}{c} \text { Average } \\ \text { Variable cost } \end{array} & \begin{array}{c} \text { Average } \\ \text { Total cost } \end{array} & \begin{array}{c} \text { Marginal } \\ \text { cost } \end{array} \\ \hline 0 \\ 1 & \$ 60.00 & \$ 45.00 & \$ 105.00 & \$ 45 \\ 2 & 30.00 & 42.50 & 72.50 & 40 \\ 3 & 20.00 & 40.00 & 60.00 & 35 \\ 4 & 15.00 & 37.50 & 52.50 & 30 \\ 5 & 12.00 & 37.00 & 49.00 & 35 \\ 6 & 10.00 & 37.50 & 47.50 & 40 \\ 7 & 8.57 & 38.57 & 47.14 & 45 \\ 8 & 7.50 & 40.63 & 48.13 & 55 \\ 9 & 6.67 & 43.33 & 50.00 & 65 \\ 10 & 6.00 & 46.50 & 52.50 & 75 \\ \hline \end{array}$$ a. At a product price of $\$ 56,$ will this firm produce in the short run? Why or why not? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? Explain. What economic profit or loss will the firm realize per unit of output? b. Answer the relevant questions of 4 a assuming product price is $\$ 41$ c. Answer the relevant questions of 4 a 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). $$\begin{array}{cccc} \hline \begin{array}{c} \text { (1) } \\ \text { Price } \end{array} & \begin{array}{c} \text { (2) } \\ \text { Quantity } \\ \text { Supplied, } \\ \text { Single Firm } \end{array} & \begin{array}{c} \text { (3) } \\ \text { Profit }(+) \\ \text { or Loss }(-) \end{array} & \begin{array}{c} \text { (4) } \\ \text { Quantity } \\ \text { Supplied } \\ 1500 \text { Firms } \end{array} \\ \hline \$ 26 & \text {_____} & \$ \text {_____} & \text {_____} \\ 32 & \text {_____} & \text {_____} & \text {_____} \\ 38 & \text {_____} & \text {_____} & \text {_____} \\ 41 & \text {_____} & \text {_____} & \text {_____}\\ 46 & \text {_____} & \text {_____} & \text {_____} \\ 56 & \text {_____} & \text {_____} & \text {_____} \\ 66 & \text {_____} & \text {_____} & \text {_____} \\ \hline \end{array}$$ e. Explain: "That segment of a competitive firm's marginalcost curve that lies above its average-variable-cost curve constitutes the short-run supply curve for the firm." Illustrate graphically. f. Now assume that there are 1500 identical firms in this competitive industry; that is, there are 1500 firms, each of which has the cost data shown in the table. Complete the industry supply schedule (column 4). g. Suppose the market demand data for the product are as follows: $$\begin{array}{|cc|} \hline \text { Price } & \begin{array}{c} \text { Total Quantity } \\ \text { Demanded } \end{array} \\ \hline \$ 26 & 17,000 \\ 32 & 15,000 \\ 38 & 13,500 \\ 41 & 12,000 \\ 46 & 10,500 \\ 56 & 9500 \\ 66 & 8000 \\ \hline \end{array}$$ 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?
A firm sells 10,000 units of X per month at the market price of $10. There are many other firms in this industry producing the same variety of X. With all firms producing an identical product, each firm is a price taker in this market. Farah Mahmood and her friend Daniela Rodriguez, both students of economics, are debating the impact of a recent increase in the demand for X. Farah feels that the demand faced by each firm will shift to the right. This in turn will increase the market price. Daniela meanwhile is not sure how much the price will rise because she thinks that the immediate response to the higher demand will be a rightward shift in each firm's supply curve. Farah's claim that each firm's demand curve will shift right is flawed because: A. she is ignoring the impact of the increased demand on producer surplus. B. she is confusing the demand curve faced by the firm with the market demand curve. C. she is assuming that the market demand curve is not linear. D. she is assuming that the law of supply does not hold for X. E. she is confusing supply and quantity supplied
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