Name: ______

Team: ______

Graded by: ______

Unit III: Costs of Production and Perfect Competition

Problem Set #3

Integrity Agreement

I agree that all of the work in this presentation is my original work. I agree to keep this work to myself this year and for future years. I understand that if this work is not my own original work or if I share my original work with others, that I will be sent to my GLC for academic dishonesty.

Digital Signature: type your full name here

  1. Define the terms in your own words and use a real world example for each termthat clearly demonstrates your understanding of the concepts.
  2. Explicit and Implicit Costs (____/4)
  3. The Law of Diminishing Marginal Returns (3 Stages w/ examples) (____/6)
  4. Fixed Costs, Variable Costs, and Total Cost (____/6)
  5. Economies of Scale, Constant Returns to Scale and Diseconomies of Scale (____/6)
  1. Productivity and Costs
  2. Complete the worksheet “Production Function for Tony’s Hat Store” (____/10)
  3. Complete worksheet titled “Cost and Competitive Market Supply”(____/10)
  4. Explain the relationship between the marginal product curve and the marginal cost curve. In your response, explain why the marginal cost curve is “U” shaped using numerical examples. (____/5)
  1. Below is information regarding Cory’s Surfboard Inc. Complete the table and do the following (____/5):
  1. On a large graph, plot the MC, AFC, AVC, and ATC curves from this data (____/5)
  2. EXPLAIN what would happen to each of Cory’s per unit cost curves if the price of Styrofoam blanks (a variable input) decreases. How would the cost curves change if there were a decrease in his rent (a fixed input)? Explain why the results are different. (____/5)
  3. If the market for surfboards was perfectly competitive and the market price was $90, how many surfboards should Cory make and how much profit will he make for EACH surfboard? Draw the firms demand on your graph in a. Explain how you got your answer. (____/5)

Total
Product / Variable Costs (TVC) / Total Cost
(TC) / Average Fixed Cost (AFC) / Average Variable Cost (AVC) / Average Total
Cost (ATC) / Marginal
Cost (MC)
0 / $0 / $50 / - / - / - / -
1 / 50
2 / 80
3 / 120
4 / 170
5 / 240
6 / 330
7 / 480
8 / 670
  1. Complete thepractice FRQ (This will be given to you in class and graded in class):
  2. In-class Practice FRQ (____/12)
  1. Assume that apples are an inferior good. Draw and label side-by-side graphs for a-c.
  2. Draw a perfectly competitive market for apples and a firm selling apples which is currently in the long run equilibrium where price is $10 and the firm’s equilibrium quantity is 50._____(3)
  3. Graph and explain what happens in the short-run if incomes increases? ( ____/5)
  4. Graph and explain the process by which this market returns to the long-run equilibrium ( ____/5)
  1. Turn It In Receipts ( _____/5)7. Format ( _____/5)