Problem A
Choco Delite is a manufacturer of fine chocolates. Its monthly rental expense is $1,000,000. It also has $2 million in fixed labor costs. Its marginal costs are $.70 per chocolate bar. If sales fall by 30 percent from 2 million chocolate bars per month to 1,400,000 chocolate bars per month, what happens to the AFC per chocolate bar? The MC per chocolate bar? What about the minimum amount that can be charged to break even on these costs?
Problem B
Assume that the cost data in the table below are for a purely competitive producer:
Cost Data
| Total |
Average |
Average |
Average |
Marginal |
Price |
Price-ATC |
| Product |
Fixed Cost |
Variable Cost |
Total Cost |
Cost |
|
|
| 0 |
|
|
|
|
|
|
| 1 |
$25.00 |
$10.00 |
$35.00 |
$10.00 |
|
|
| 2 |
12.5 |
8 |
20.5 |
6 |
|
|
| 3 |
8.33 |
6.67 |
13 |
4 |
|
|
| 4 |
6.25 |
5.5 |
11.75 |
2 |
|
|
| 5 |
5 |
4.8 |
9.8 |
2 |
|
|
| 6 |
4.17 |
4.5 |
8.67 |
3 |
|
|
| 7 |
3.57 |
4.57 |
8.14 |
5 |
|
|
| 8 |
3.13 |
5 |
8.13 |
8 |
|
|
| 9 |
2.78 |
6 |
8.76 |
14 |
|
|
| 10 |
2.5 |
7.5 |
10 |
21 |
|
|
Respond to the following:
How much economic profit can be achieved at each level of output? If price is $10.00 how much will be produced in the short run?
Use the price of $4 to answer queAssume that a purely competitive firm is selling 2000 television sets a day at a cost of $90,000. Assume that if the firm sells 1600 units per day, its total cost would be $60,000, and if it sold 1000 units per day, it would have a total cost of $55,000.
Calculate the average total cost at these different sales levels.
Assuming that the cost structure for every firm in the industry is identical, do you think that the industry could be in long-run equilibrium?
If the industry is perfectly competitive, what would be the long-run equilibrium market price?
If your answer to c is the market price and every firm in the industry is earning a normal profit of 15 percent, calculate what that profit would be.