1. A firm manufactures a product that it sells for $100. It sells 1000 units per week. What is its total revenue? It costs the firm $80 to produce a unit. With the given sales volume, what profit, if any, is the firm making? The firm’s manager knows that the demand for the product is highly elastic. Given that, would he make more profit if he reduces the price? Why? Be sure to think this question through.
2. A firm makes and sells a computer for $1000. The variable cost to produce a computer, for the range of production of the firm, is $300 per unit. The total fixed costs per year to make the computer are $5.0 Million. How many computers must be made and sold, given this information, before the firm makes a profit? How many must be made and sold to earn a $1 million pretax profit?
3. At its current short-run level of production, a firm’s average variable costs equal $20, and its average fixed costs equal $70. Its total costs at its current production level equal $300,000.
a. What is the firm’s current output level? :
b. What are its total variable costs at this level? :
c. What are its total fixed costs?
4. Under which market structure would you classify the airline industry? Given this structure, why is it that there is little price competition between carriers on the same route? Why is there not more price competition? If they do not choose to compete on price in most cases, how do they compete with one another? What strategies do they employ?
5. We are in the midst of a slow growing economy in the aftermath of a severe recession. During the economic downturn many businesses laid off workers very quickly once they forecast their sales were dropping. What are the economic reasons behind cutting employees very quickly in a slowing economy? Why are companies slow to rehire workers even though the stock market is quite high? In other words, what are some of the impediments to hiring and how are businesses getting the work done with fewer employees?
6. Governor Brown, from the state of Taxafornia, wants to increase sales taxes to bring in badly needed revenue to support state operations. He is looking at taxing various goods and services. Will the state tax revenue be greater if the state imposes a sales tax on goods where the price elasticity of demand = .9, or 1.5? Explain your answer.
7. I am a farmer in Massachusetts and I have a small farm where I sell my vegetables in a local roadside stand. .Other farmers in my town also sell their produce locally in farm stands. What market structure would an economist classify my farm business in? Also, given that structure, what business strategies can I employ to maximize my profit?