micro question econ1101 (1 Viewer)

[herewego]

can anyone explain multiple choice q8 from the sample paper on webct.

"bedlinen shuld shut down operations in the short run only if the mkt price falls below..."

a. $2
b. $3
c. $5
d. $7


given:

q (sheets).........total cost (all per hour)

0.............6
1............10
2............12
3.............21
4............38
5............56
6............82
7...........112

and price per sheet is $10, firm is a price taker

 

[RZ]

i think it's b. $3 dollars

since that's the minimum of Average Varible Cost

 

[tempco]

shut down when market price falls below average variable cost.

fixed cost is $6

take q = 1

tc = tfc + tvc

10 = 6 + 4

divide by 1 (q), since atc = afc + avc is tc/q = tfc/q + tvc/q

atc = afc + avc

hence, avc = 4

answer is $3

is there a faster/easier way of doing this?

 

[tempco]

i think it's b. $3 dollars

since that's the minimum of Average Varible Cost

ah damn, yeh... you have to calculate the minimum. oops.

 

[RZ]

calculate total variable cost then average variable cost at each output and see which is the minimum

TFC = 6
TC TVC AVC
1 10 4 4
2 12 6 3
3 21 15 5

well you can stop there since you can see 3 is minimum.

lol hope this is right :/

 

[ToO LaZy ^*]

this may be a bit late...but the shut down point is where P = AVC
ie. it shuts down when AVC = $10
at 0 output, total cost is $6, therefore fixed costs are $6

then if you look at the 5th unit of output...total costs equal 56, which means 50 is the variable cost (56-6). to find AVC, we divide the total variable cost by the output (50/5) and it comes to $10...which equals price!

not sure how you guys were taught..

 

[RZ]

the question is asking below what price will the company shutdown in perfect competition the company will shut down when the price can not cover the minimum AVC.

the AVC varies as the amount of output you produce so you have to find the AVC at each output and find the minimum so that when the price falls below this minimum the firm will shut down.

 

[ToO LaZy ^*]

*shrugs*...

 

[t-i-m-m-y]

Just think, if you can't even make 'profit' on your variable factors, instead making a loss, you should shut down.

 

[Acid]

Once again proving that UNSW Commerce > USYD Commerce

 

[kaitoufion]

Once again proving that UNSW Commerce > USYD Commerce

How did you come up with this conclusion?

 

[Acid]

From Too Lazy's comments ... "not sure how you guys were taught"..

 

[ToO LaZy ^*]

impressive research work done there...well done sir sherlock holmes

 

[Acid]

impressive research work done there...well done sir sherlock holmes

Thanks watson

 

[Bambul]

I was going to agree with Too Lazy, but then I read Acid's response and, well...you got owned!

 

[ToO LaZy ^*]

Zing!.....