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ECON 251 Microeconomics Assignment

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Reference no: EM133072929

ECON 251 Microeconomics - American University of the Middle East

Problem 1

Adrian decides to open a new ready-to-wear skirts brand. While making his study, he noticed that his fixed cost of production is 120 dollars.

The following table gives the other information:

Output Variable cost (VC) Fixed Cost (FC)  Total Cost (TC) Average Total Cost (ATC) Total Revenue (TR) Profit
0 0 120 120 0 0 -120
50 200 120 320 6.4 750 430
100 310 120 430 4.3 1500 1070
150 450 120 570 3.8 2250 1680
200 620 120 740 3.7 3000 2260
250 1080 120 1200 4.8 3750 2550
300 1830 120 1950 6.5 4500 2550
350 2800 120 2920 8.3 5250 2330

a) What is the total cost of this production for each level of output level? Show your steps and fill in the table.

b) The market price of skirts is 15 dollars. Find the revenue and profit of each output level (fill in the table). Find the profit-maximizing output.

c) Compute the average total cost for each level of output (fill in the table) and find the cost-minimizing output. Explain your answers.

Problem 2

Following the information in problem 1. Jacob wants to do a marginal analysis to help him decide if he shall enter the market.

Output Variable cost (VC) Fixed Cost (FC)  Total Cost (TC) Average Total Cost (ATC) Average Variable Cost (AVC) Marginal Cost (MC) Total Revenue (TR) Profit
0 0 120 120 0 0   0 -120
50 200 120 320 6.4 4 200 750 430
100 310 120 430 4.3 3.1 110 1500 1070
150 450 120 570 3.8 3 140 2250 1680
200 620 120 740 3.7 3.1 170 3000 2260
250 1080 120 1200 4.8 4.32 460 3750 2550
300 1830 120 1950 6.5 6.1 750 4500 2550
350 2800 120 2920 8.3 8 970 5250 2330

a) Using the information in problem 1. Calculate marginal cost and average variable cost Show your steps.

b) Define and find the break-even price and the break-even quantity for Jacob's firm Explain the way you identify these two values.

c) Define and find the shut-down price and the shut-down quantity for Jacob's firm Explain the way you identify these two values.

d) Find the marginal revenue and determine the quantity that maximizes Jacob's output? Explain your answer and provide the formula.

e) According to your calculations, what is your advice for Jacob? Should he stay or leave the market? Explain your answer.

f) Calculate the value of the profit realized by the firm.

Attachment:- Microeconomics.rar

Reference no: EM133072929

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