ECO101H1 Study Guide - Final Guide: Average Cost, Opportunity Cost, Demand Curve

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ECO101H1 Full Course Notes

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Part i: multiple choice: tc of 1 unit = 1000. > tc of 1 unit = 1000 = vc+fc=250+fc. Answer: a: tc of 5 units is . Average total cost decreases until it intersects with the marginal curve. This means that marginal cost is increasing and is greater than average total cost. Answer: b: if market price is 8, the produce only 3 units. > profit=(price average total cost) x quantity = (8-40) x 3 =- . 00. Answer: b: if market price is 30, firm produces 10 units. Answer: e: ,000 could have been earning 6 percent interest. The opportunity cost is 10,000 x 0. 06= annually. Answer: b: the opportunity cost is the value of the next best alternative = video games with your friends has the next highest value to you = . Answer: a: the opportunity cost of the dinner is the value of the next best alternative.

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Answer the following questions pertaining to the graph.

1. What is the shape of the AVC and ATC curves? What economic law accounts for this shape? How do you know this?

2. What is the shape of the MC curve? Why does it have this shape? How do you know this?

3. What do you know about the values of AVC and ATC at the points where MC crosses them?

4. Is the AVC higher than the ATC or lower than it? How do you know this?

5. Is the costs in the short run or the long run? How do you know this?

6. Assume the company above is in a Perfect Competition Industry: If the price of the product is $20 that is sold at, what will be the profits and how many will be sold at that price? Can the company raise the price?

7. Again in a Perfect Competition Industry: What would the profit situation be at a price of $30, how much to sell at that price?

8. With the Perfect Competition industry: What would the profit situation be at a price of $10, how much to sell at that price?

9. What are the characteristics of a perfect competition company and industry?

Following is the complete table -

Q	FC	VC (TC-FC)	TC	AFC (FC/Q)	AVC (VC/Q)	ATC (TC/Q)	MC (TC_n-TC_n-1)
0	10	0	10	-	-	-	-
1	10	10	20	10	10	20	10
2	10	18	28	5	9	14	8
3	10	23	33	3.33	7.67	11	5
4	10	33	43	2.5	8.25	10.75	10
5	10	48	58	2	9.6	11.6	15
6	10	68	78	1.67	11.33	13	20
7	10	98	108	1.43	14	15.42	30
8	10	148	158	1.25	18.5	19.75	40

coralcamel331

1) Consider a firm that has a fixed cost of $70. Complete the following table:

Output	FC	VC	TC	MC	AFC	AVC	ATC
1		$20
2		28
3		40
4		56
5		80

2a) A publisher initially prices both hardback books and paperback books at $30 per book. Each book costs $3 to produce. Complete the following table.

	Price	Quantity	Total Revenue	Total Cost	Profit
Hardback	$30	150
Paperback	30	150
Total		300

b) The price elasticity of demand for the hardback is 0.6 and the price elasticity of demand for the paperback is 3. Suppose the publisher increases the price for hardback by 10% and decreases the price of paperback by10%. Complete the following table.

	Price	Quantity	Total Revenue	Total Cost	Profit
Hardback
Paperback
Total

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Fill in the blanks below with the correct cost information.

Output TFC TVC TC AFC AVC ATC MC

0 ______

1 45.00 _____

2 40 ______

3 15.00 ______ 35

4 ______ 30

5 ______ 35

6 ______ 40

7 ______ 45

8 ______ 55

9 ______ 65

10 ______ 75

b. Assuming a purely competitive market, determine the optimal output and economic profit or loss for $55.

c. Answer the same questions as in part b. assuming a price of $32.

d. Answer the same questions as in part b. assuming a price of $45.

e. What output level does diminishing marginal returns begin to set in? How do you know this?

f. At what output level does Stage 2 of production begin?

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ECO101H1 Study Guide - Final Guide: Average Cost, Opportunity Cost, Demand Curve

ECO101H1 Full Course Notes

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