# Econ201 Assignment

Topics: Marginal cost, Costs, Variable cost Pages: 2 (318 words) Published: January 2, 2013
1) John’s Revenue: \$27 * 10 = \$270
Total cost: \$280 of which \$30 is a fixed cost and \$250 is a variable cost.

a) John should not shut down in the short run because his total Revenue (\$270) is larger than the variable cost (\$250). A firm should shut down if only the revenue it would get from producing is less than its variable cost of production. Though John is having a loss of \$10, he should not shut down in the short run because it will increase his loss to \$30 which is the fixed cost he must pay even with zero quantity of production, so it’s better producing 10 lawns with a loss of \$10 rather than a loss of \$30.

b) John should exit in the long run because his total revenue (\$270) is less than his total cost (\$280). John is having a loss of \$10 a day and it is better to exit the market in the long run.

2) a)
Quantity of CD'sPriceTotal revenueMarginal Revenue
10,000\$24\$240,000
20,000\$22\$440,000\$200,000
30,000\$20\$600,000\$160,000
40,000\$18\$720,000\$120,000
50,000\$16\$800,000\$80,000
60,000\$14\$840,000\$40,000

b)
Quantity of CD'sPriceVariable cost (Total Cost)Total revenueprofit 10,000\$24\$50,000\$240,000\$190,000
20,000\$22\$100,000\$440,000\$340,000
30,000\$20\$150,000\$600,000\$450,000
40,000\$18\$200,000\$720,000\$520,000
50,000\$16\$250,000\$800,000\$550,000
60,000\$14\$300,000\$840,000\$540,000

50,000 CD’s at a price of \$16 would maximize profit.
The Profit would be \$550,000

3) a)

b) Sparkle’s Profit is zero because the price equals the average total cost as shown in the Diagram.

c)