Cost and Production Analysis in Microeconomics - Prof. Jose J. Vazquez, Study notes of Microeconomics

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Week 10

Cong / Shirley

Cost

• Fixed Cost --Cost of the fixed inputs which doesn’t depend on the quantity of output
• Variable cost --Cost of the variable inputs which is changing with the quantity of output
• Total cost --FC+VC
• Marginal cost --The additional total cost generated by producing one additional unit of output

Production

• Perfect competitive market

--in which all market participants are price takers

• Market participants

-- Producers Price-taking producers’ actions have no effect on the market price of the good or service it sells

--Consumers Price-taking consumers’ actions have no effect on the market price of things he buys

Profit

• Economic profit =Total Revenue – Total Cost

--TR=P•Q

• Marginal revenue

--The change in total revenue generated by an additional output

• Optimal Output level --at which MR=MC

--For a price-taking firm, MR=P, so the optimal output level is also P=MC

Q1. If Jacob knows the marginal cost of the first sports jersey is $21, the marginal cost of the second sports jersey is $40, and the marginal cost of the third jersey is $17, what is the total variable cost of producing three jerseys?

a) $

b) $

c) $

d) $

Q2. Kaile Cakes is currently producing 10 cakes per day. The marginal cost of the tenth cake is $24, and average total cost of 10 cakes is $6. The average total cost of 9 cakes is:

a) $

b) $

c) $

d) $

Q4. If a business is operating in a competitive market in the short run, what is fixed?

a) market price and total costs

b) marginal costs and average total costs

c) market price and fixed costs

d) profits

Q5. In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?

a) $0 per unit

b) $1 per unit

c) $2 per unit

d) $3 per unit