1. A profit-maximizing firm you work for is currently producing 2000 units of output per month. The firm can sell all it wants of its product at the market price of $50 per unit. At its current level of production, the firm's marginal costs are $50 per unit and increase as output expands. Total fixed costs are $50,000 per month and monthly total variable costs are $80,000. Your advice to the firm is: A. Maintain the current rate of output in the short run but prepare to leave the industry in the long run. 3. Maintain the current rate of output in the short run and expect to remain in the industry in

1. A profit-maximizing firm you work for is currently producing 2000 units of output per month. The firm can sell all it wants of its product at the market price of $50 per unit. At its current level of production, the firm's marginal costs are $50 per unit and increase as output expands. Total fixed costs are $50,000 per month and monthly total variable costs are $80,000. Your advice to the firm is: A. Maintain the current rate of output in the short run but prepare to leave the industry in the long run. 3. Maintain the current rate of output in the short run and expect to remain in the industry in

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.6IP

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1. You are running a (small) chain of gourmet burger joints with two locations (San Antonio and Laredo) You have been charging $10 for your burger meal (fries, burger and soft drink). Across both locations, you sell 2400 meals per week at this price. When you raised the price to $13 for the burger meal, your sales across the two locations fell to 1800 meals per week. For your costs, you have fixed costs of $3000 per week across the two locations. In addition, it costs you six dollars per burger in variable costs (ingredients, labor etc.) A. What is your combined cost function across the two locations? B. Using the two prices above, estimate your combined demand function across the two locations? C. Using the combined demand function and cost function calculated above, calculate the profit-maximizing price and quantities? D. What are your (combined) weekly profits across the two locations?
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Q23 Suppose a perfectly competitive firm is currently operating with the following information: Output = 1500 tonnesAverage total cost = $627 per tonneAverage variable cost = $614 per tonneMarginal revenue = $620 per tonneMarginal cost = $620 per tonneAt the current level of output, this firm is _____ profit and is an earning economic profit of _____. a. Maximising; -$10500. b. Not maximising; -$10500. c. Maximising; $10500. d. Maximising; $9000. e. Not maximising; -$9000.
Caroline opens a lemonade stand for two hours. She spends $15 for ingredients and sells $50 worth of lemonade. In the same two hours, she could have mowed the neighbor's yard and earned $10. a. What are Caroline’s explicit and implicit costs? b. What is Caroline’s accounting profit? What is her economic profit? Show how you calculated each profit.
Peter runs a small local newspaper company. He can sell a newspaper at $2. He has fixed costs of $10,000. His variable costs are $1,500 for the first thousand newspapers, $1000 for the second thousand, and then $600 for each additional thousand newspaper.Can he make profit at current market price? What is the breakeven price in this business (assuming maximum production at 10,000 newspaper)?
Laura’s cleaning service is a profit-maximising, competitive firm. Laura cleans awhole house for $156. Her total cost each day is $1680, of which $480 is a fixed cost. She cleans 8 houses a day.(a)Should Laura shutdown her business in the short-run, assuming that she cannot recover her fixed cost?(b) Should she exit in the long-run?