PS5

ECON 101-1

SUMMER 2002

Due Wednesday July 3

1. Complete the following table

Q / TC / TFC / TVC / MC / ATC / AVC
0 / ----- / ------ / ------
1 / 18
2 / 8
3 / 24
4 / 10 / 10.5
5 / 10
6 / 58
7 / 8
8 / 64
9
10 / 9

2. TC = X^3 - 6X^2 + 16X + 32

MC = 3X^2 – 12X + 16

Use the Total Cost and Marginal Cost functions for Patagonia backpacks to find the following:

a. What is the Total Fixed Cost function?

TFC =

b. What is the Total Variable Cost function?

TVC =

c. What is the Average Total Cost function?

ATC =

d. What is the Average Fixed Cost function?

AFC =

e. What is the Average Variable Cost function?

AVC =

f. Complete the following table using the previous equations

P / Q / TC / TFC / TVC / MC / ATC / AVC / TR / Profit
96 / 0
96 / 1
96 / 2
96 / 3
96 / 4
96 / 5
96 / 6
96 / 7
96 / 8

g. Using graph paper carefully graph MC, ATC, and AVC.

What is the minimum of the ATC curve?

What is the minimum of the AVC curve?

h. If the market price for backpacks is $4 what output level should Patagonia produce? What level of economic profit will be made? What will happen to the industry in the long run?

i. If the market price for backpacks is $7 what output level should Patagonia produce? What level of economic profit will be made? What will happen to the industry in the long run?

j. If the market price for backpacks is $16 what output level should Patagonia produce? What level of economic profit will be made? What will happen to the industry in the long run?

k. If the market price for backpacks is $96 what output level should Patagonia produce? What level of economic profit will be made? What will happen to the industry in the long run?

3. Provide 2 examples of perfectly competitive firms and explain what characteristics they exhibit.