ASSIGNMENT #3: Production Cost

Need to complete this assignment————————————————————————————————-WRITTEN ASSIGNMENT #3:Please open the document in the link below and follow the instructions, answering all the questions.Attempt to integrate your personal insights and real world facts with economic concepts from the textbook.1. See File Attached “ASSIGNMENT 3-1.docx”.The following link opens a document with “Hints.”2. See File Attached “Hints.docx”.Also the textbook is available here: http://bit.ly/2nWsi19 – (eBook PDF)Thank You So Much.
assignment_3_1.docx

hints.docx

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WRITTEN ASSIGNMENT #3: Cost & Production
NAME: _________________________________
Short run cost structure and production decisions of Joe?s Barbershop
Assume a perfectly competitive market; the point of this exercise is to decide how much should Joe produce of barbering
services when the market price is as the following questions propose. (Use textbook jargon and explain the typical actions
of the firm.) Complete all parts to this assignment and answer all questions.
To understand how costs must be considered in the operation of a firm in the short run,
(i)
(ii)
(iii)
(iv)
Complete the cost structure table on the next page;
Initially assuming a price of $4.00 construct a graph showing the total cost, total variable cost, and a revenue;
identify breakeven quantity;
Continuing to assume a price of $4.00 construct a graph showing the average fixed cost, average variable cost,
average total cost, marginal cost, and a price line; identify breakeven quantity;
Complete analysis at four different price levels; explain whether or not a firm would produce (and at what level,
with what consequence) and when it would shut down?depending on which of four different prices were
occurring in the market for the good. The analysis should include an explanation of how the perfectly
competitive firm comes to a decision as to what production quantity maximizes profits or minimizes losses. The
?consequence? would be related to whether profits, losses, entry of rivals, or exit of existing firms would occur?
in the short run and in the long run.
A.
At a price equal to $4.00? Explain your decision.
B.
At a price equal to $3.00? Explain your decision.
C.
At a price equal to $2.00? Explain your decision.
D.
At a price equal to $1.00? Explain your decision.
// ECON 1 // Version 01/08/18
Page 1
WRITTEN ASSIGNMENT #3: Cost & Production
Quantity
FC
$
VC
20
$
TC

$
0
20
10
20
15
20
22
20
33
20
48
20
67
20
90
20
117
20
148
20
183
20
AFC
AVC
ATC
MC
X
X
X
X
10
20
30
40
50
60
70
80
90
100
// ECON 1 // Version 01/08/18
Page 2
Total
Revenue
($4)
Profit
($4)
Total
Revenue
($3)
Profit
($3)
Total
Revenue
($2)
Profit
($2)
Total
Revenue
($1)
Profit
($1)
HINTS ? WRITTEN ASSIGNMENT #3
?
Total Hourly Cost = Fixed Cost Variable Cost
?
Average Fixed Cost = Fixed Cost / Total Hourly Output
?
Average Variable Cost = Variable Cost / Total Hourly Output
?
Average Total Cost = Total Cost / Total Hourly Output = Average Fixed Cost Average Variable Cost
?
Marginal Cost = Change in Total Cost / Change in Total Hourly Output
o Example: MC = (9.00 – 5.00) / (1 – 0) = 4.00 / 1 = 4.00.
?
Total Revenue = Price X Total Hourly Output
?
Profit = Total Revenue – Total Cost
The perfectly competitive firm chooses the Total Hourly Output where Price = Marginal Cost. (See color
coding. Note this rule provides maximum profit.)
Even if you set price equal to marginal cost to discover the profit-maximizing Total Output one has to consider
if one should ?shut down? or stay in business. When the price falls below Average Variable Cost, the firm will
shut down in the short run. When the price falls below Average Total Cost, the firm will shut down in the long
run.
I describe this as if you don?t pay your workers on Friday, the workers don?t show up on Monday. (This is
where P < AVC.) When you don?t make your lease payments on your equipment or factory, the banker repossesses these inputs at the end of the month. (This is where P < ATC.) If your price persists above Average Total Cost, consider what happens: economic profits are earned. What is the difference between ?economic profits? and ?normal profits?? What do economic profits incentivize? ... Purchase answer to see full attachment

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