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

Quantity of CD'sPriceVariable cost (Total Cost)Total revenueprofit 10,000$24$50,000$240,000$190,000

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.

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