Problem 1) Consider the following costs of owning and operating a car. A $15,000 Ford Taurus financed over 5 years at 10 percent interest means a monthy payment of $ 318.17. Insurance costs $100 a month regardless of how much you drive. The car gets 20 miles per gallon and uses unleaded regualr that costs $1.50 per gallon. Finally suppose that wear and tear on the car costs about 15 cents a mile. Which costs are fixed and which are vairable? What is the marginal cost of a mile driven? In deciding whether to drive from New York to Pittsburg ( about 1,000 miles round trip_ to visit a boyfriend/girlfriend, which costs should be considered/ Why?
Create an excel spreadsheet for this answer.
Problem 2) True or False why?
a) For a competitive firm facing a market price above average total costs. the existence of economic profit meand the firm should increase output in the short run even if price is below marginal cost.
b) If marginal cost is rising with increasing output average cost must also be rising.
c) Fixed costs is constant at ecery level of output except zero. When a firm produces no output fixed costs are zero in the short run.