Economics Problem Solving

ECONOMICS PROBLEM SOLVING

EconomicsProblem Solving

ProblemA

Fixedcost is always constant thus, the average fixed cost would notchange per chocolate bar even if the price changes. Marginal cost isusually dependent on total cost this is to indicate that marginalcost will change as total cost and revenue changes. For the casepresented, marginal cost per chocolate bar is likely to fall sincethe sales will decrease. This is because a decrease in sales impliesa decrease in revenues.

ProblemB

Foreconomic profit to be achieved, total cost must be deducted fromtotal revenue.

Incase price is 10, then economic profit for the different productionswould be as follows

-25,-.50, 17, 28.25, 40.20, 51.33, 61.86, 71.87, 81.24, 90. (the economicprofit is organized from the production of one unit going through 10units in that order).

Ata price of 4, the economic profit would be as follows -31, -12.50,-1, 4.25, 11.20, 5.33, 23.87, 27.24, 30.

Ata price of 14, the economic profits would be as follows -21, -7.50,29, 44.25, 60.20, 71.3389.86, 103.87, 117.24, 130.

ProblemC

Averagetotal cost for 2000 televisions = 90,000/2000 = 45

For1600 units, average total cost would be 60,000/1600 = 37.50

For1000 units, the average total cost would be 55000/1000 = 55

Incase every firm in the industry is identical, the industry cannot bein long-run equilibrium because the prices ranges are exceedinglydifferent. The industry could be in long run equilibrium in case theprices do not differ a lot.

Incase the industry is perfectly competitive, the long run equilibriumprice would be an average of the different prices charged in thedifferent firms that is, (45 + 55 + 37.50)/3 = 45.83.

References

Hirshleifer,J., Glazer, A., &amp Hirshleifer, D. A. (2005).&nbspPricetheory and applications: Decisions, markets, and information.New York: Cambridge University Press.