Eco 301 Name______

Problem Set 9 4 November 2009

1. The Preservation Embalming Company's cost data have been partially entered in the table below. Following the sudden and unexpected death of the company's accountant, you are called on to fill in the missing entries.

Bodies embalmed / Total
cost / Fixed cost / Variable
cost / ATC / AVC / AFC / MC
0 / 24
1 / 16
2 / 50
3 / 108
4 / 52
5 / 39.2
6 / 47

2. A firm purchases capital and labor in competitive markets at prices of r = 6 and w = 4, respectively. With the firm's current input mix, the marginal product of capital is 12 and the marginal product of labor is 18. Is this firm minimizing its costs? If so, explain how you know. If not, explain what the firm ought to do.


Please do problems 3, and 4 as Excel spreadsheets. Graph AC, AVC, and MC placing the graph on the spreadsheet page with the table (as I have done on the answer key). Turn in your spreadsheets with your problem set. You can copy the tables from the web version of this problem set to paste into Excel.

3. The table below shows the cost data for Big Bob’s Bagel Bin (BBBB). Assume that Big Bob’s bagels are indistinguishable from his competitors’ bagels, and that Big Bob produces and sells a tiny fraction of the total number of bagels exchanged in the market.

Quantity
per day / Fixed Cost / Variable Cost / Total Cost / AFC / AVC / ATC / MC
0 / $2.00 / $0.00 / ── / ── / ── / ──
1 / 2.00 / 1.00
2 / 2.00 / 1.40
3 / 2.00 / 1.85
4 / 2.00 / 2.35
5 / 2.00 / 2.90
6 / 2.00 / 3.50
7 / 2.00 / 4.20
8 / 2.00 / 5.00
9 / 2.00 / 5.90
10 / 2.00 / 6.90
11 / 2.00 / 8.00
12 / 2.00 / 9.20
13 / 2.00 / 10.50
14 / 2.00 / 11.90

4. The following table presents the expected cost data for Phil the Florist. Phil raises flowers in a greenhouse and sells them wholesale in a purely competitive market.

Output / FC / VC / TC / AFC / AVC / ATC / MC
1 / 25.00 / 4.80
2 / 25.00 / 8.75
3 / 25.00 / 12.25
4 / 25.00 / 15.25
5 / 25.00 / 17.75
6 / 25.00 / 19.75
7 / 25.00 / 21.50
8 / 25.00 / 23.00
9 / 25.00 / 24.25
10 / 25.00 / 25.25
11 / 25.00 / 26.50
12 / 25.00 / 28.25
13 / 25.00 / 30.75
14 / 25.00 / 34.25
15 / 25.00 / 39.00
16 / 25.00 / 45.00
17 / 25.00 / 52.25
18 / 25.00 / 60.50
19 / 25.00 / 70.00
20 / 25.00 / 83.00