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| a. To maximize profit, how many pounds of potatoes should this seller produce? Suppose that the potato grower’s bank ratchets up the interest rate applicable to the grower’s adjustable-rate mortgage loan. This increases the size of the potato grower’s monthly mortgage payment. b. Illustrate the change in the mortgage payment by shifting the appropriate cost curves. c. Which curves shift? Which do not? Why? d. How does the change in interest rates affect the grower’s decision on how many potatoes to produce? e. What happens to the potato grower’s profit as a result of the increased interest rate? f. How does the change in interest rates affect the shape and/or position of the grower’s short-run supply curve? |
Consider the graph on the right, which depicts the cost
Marty sells flux capacitors in a perfectly competitive market. His
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| Marty sells flux capacitors in a perfectly competitive market. His marginal cost is given by MC = Q. Thus, the first capacitor Marty produces has a marginal cost of $1, the second has a marginal cost of $2, and so on. a. Draw a diagram showing the marginal cost of each unit that Marty produces. b. If flux capacitors sell for $2, determine the profit-maximizing quantity for Marty to produce. c. Repeat part (b) for $3, $4, and $5. d. The supply curve for a firm traces out the quantity that firm will produce and offer for sale at various prices. Assuming that the firm chooses the quantity that maximizes its profits [you solved for these in (b) and (c)], draw another diagram showing the supply curve for Marty’s flux capacitors. e. Compare the two diagrams you have drawn. What can you say about the supply curve for a competitive firm? |
Consider the diagram on the right that depicts the cost
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| a. The owner of the firm finds that marginal cost and marginal revenue are equal at 11 units of output. If the owner produces 11 units, what will his profit or loss be? b. Suppose instead that the owner decides to produce nothing-he idles the production line and cuts his variable costs to zero. What will his profit or loss be? c. If the price is $7, is it better for the firm to produce 11 units, or nothing at all? What if the price is $9? |
Nancy sells beeswax in a perfectly competitive market for $50
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| a. If Nancy is interested in maximizing her total revenue, how many pounds of beeswax should she produce? b. What quantity of beeswax should Nancy produce in order to maximize her profit? c. At the profit-maximizing level of output, how do marginal revenue and marginal cost compare? d. Suppose that Nancy’s fixed cost suddenly rises to $30. How should Nancy alter her production to account for this sudden increase in cost? e. Suppose that the bee’s union bargains for higher wages, making the marginal cost of producing beeswax rise by $8 at every level of output. How should Nancy alter her production to account for this sudden increase in cost? |
A firm has a production function given by Q =
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| A firm has a production function given by Q = 10K0.25L0.25. Suppose that each unit of capital costs R and each unit of labor costs W. a. Derive the long-run demands for capital and labor. b. Derive the total cost curve for this firm. c. Derive the long-run average and marginal cost curves. d. How do marginal and average costs change with increases in output? Explain. e. Confirm that the value of the Lagrange multiplier you get from the cost-minimization problem in part (a) is equal to the marginal cost curve you found in part (c). |
Philo T. Farmsworth is a corn farmer with a 40-acre
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| Philo T. Farmsworth is a corn farmer with a 40-acre tract of land. Each acre can produce 100 bushels of corn. The cost of planting the tract in corn is $20,000, and the cost of harvesting the corn is $10,000. In May, when corn is selling for $10 per bushel, Philo plants his crop. In September the price of corn has fallen to $2 per bushel. What should Philo do? Explain, assuming that there are no costs involved with bringing the corn to market to sell. |
Philo T. Farmsworth is a corn farmer with a 40-acre
| Question |
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| Philo T. Farmsworth is a corn farmer with a 40-acre tract of land. Each acre can produce 100 bushels of corn. The cost of planting the tract in corn is $20,000, and the cost of harvesting the corn is $10,000. In May, when corn is selling for $10 per bushel, Philo plants his crop. In September the price of corn has fallen to $2 per bushel. What should Philo do? Explain, assuming that there are no costs involved with bringing the corn to market to sell. |
Philo T. Farmsworth is a corn farmer with a 40-acre
| Question |
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| Philo T. Farmsworth is a corn farmer with a 40-acre tract of land. Each acre can produce 100 bushels of corn. The cost of planting the tract in corn is $20,000, and the cost of harvesting the corn is $10,000. In May, when corn is selling for $10 per bushel, Philo plants his crop. In September the price of corn has fallen to $2 per bushel. What should Philo do? Explain, assuming that there are no costs involved with bringing the corn to market to sell. |
Philo T. Farmsworth is a corn farmer with a 40-acre
| Question |
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| Philo T. Farmsworth is a corn farmer with a 40-acre tract of land. Each acre can produce 100 bushels of corn. The cost of planting the tract in corn is $20,000, and the cost of harvesting the corn is $10,000. In May, when corn is selling for $10 per bushel, Philo plants his crop. In September the price of corn has fallen to $2 per bushel. What should Philo do? Explain, assuming that there are no costs involved with bringing the corn to market to sell. |
Philo T. Farmsworth is a corn farmer with a 40-acre
| Question |
|---|
| Philo T. Farmsworth is a corn farmer with a 40-acre tract of land. Each acre can produce 100 bushels of corn. The cost of planting the tract in corn is $20,000, and the cost of harvesting the corn is $10,000. In May, when corn is selling for $10 per bushel, Philo plants his crop. In September the price of corn has fallen to $2 per bushel. What should Philo do? Explain, assuming that there are no costs involved with bringing the corn to market to sell. |
