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Economics Assignment on Costs and Firms

This document contains an economics assignment with 4 questions about microeconomic and macroeconomic concepts. Question 1 asks about implicit and explicit costs of opening a hardware store. Question 2 analyzes production data for a broom company and asks about marginal product, total cost, average total cost, and marginal cost. Question 3 asks about economies and diseconomies of scale based on long-run total cost data for 3 firms. Question 4 asks about characteristics of competitive markets, the difference between revenue and profit, and how a competitive firm chooses output levels.

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Syed Jodat Askari Zaydi
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27 views1 page

Economics Assignment on Costs and Firms

This document contains an economics assignment with 4 questions about microeconomic and macroeconomic concepts. Question 1 asks about implicit and explicit costs of opening a hardware store. Question 2 analyzes production data for a broom company and asks about marginal product, total cost, average total cost, and marginal cost. Question 3 asks about economies and diseconomies of scale based on long-run total cost data for 3 firms. Question 4 asks about characteristics of competitive markets, the difference between revenue and profit, and how a competitive firm chooses output levels.

Uploaded by

Syed Jodat Askari Zaydi
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

INSTITUTE OF BUSINESS MANAGEMENT

COLLEGE OF BUSINESS MANAGEMENT

ECO 104 Micro and Macro Economics

Assignment # 7
Q. 1. Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to
rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an
accountant.
a. What are her implicit costs per year? What are her explicit costs per year?
b. If your aunt thinks she can sell $510,000 worth of merchandise in a year, should she open the store?
Explain.

Q. 2. Nimbus, Inc., makes brooms and then sells them door-to-door. Here is the relationship between the number of
workers and Nimbus’s output in a given day:

Workers Output Marginal Total Average Marginal


(L) (Q) Product Cost Total Cost
of Labor (TC) Cost (MC)
(MPL) (ATC)
0 0
1 20
2 50
3 90
4 120
5 140
6 150
7 155

a. Fill in the column of marginal products. What pattern do you see? How might you explain it?
b. A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the column
for total cost.
c. Fill in the column for average total cost. (Recall that ATC=TC/Q.) What pattern do you see?
d. Now fill in the column for marginal cost. (Recall that MC=ΔTC/ΔQ.) What pattern do you see?
e. Compare the column for marginal product and the column for marginal cost. Explain the relationship.
f. Compare the column for average total cost and the column for marginal cost. Explain the relationship.

Q. 3. Consider the following table of long-run total costs for three different firms:

Quantity 1 2 3 4 5 6 7
Firm A 60 70 80 90 100 110 120
Firm B 11 24 39 56 75 96 119
Firm C 21 34 49 66 85 106 129

Does each of these firms experience economies of scale or diseconomies of scale?

Q. 4. Answer the followings:


a. What are the main characteristics of a competitive market?
b. Explain the difference between a firm’s revenue and its profit. Which do firms maximize?
c. Draw the cost curves for a typical firm. Explain how a competitive firm chooses the level of output that
maximizes profit. At that level of output, show on your graph the firm’s total revenue and total costs.

Note: The Assignment should be hand written on the foolscap sheets.

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