# Economics Assignment

Topics: Marginal cost, Costs, Economics Pages: 32 (6693 words) Published: July 2, 2011
Chapter: 5

Question: Categorize each seller below on the basis of the type of market it operates in. Explain each of your answers: a.A Cattle farmer
b.A Computer market
c.A picture framing shop is a large metropolitan area.
d.A seller of Canadian dollars in a foreign currency markets. e.A life insurance company
f.A liquor store in a remote village
g.A visual Artist
h.A Country that produces a valuable radioactive mineral found in no other part of the world.

Answer to the question no. 1

Answer to the question no. 2.a

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Price \$/kgQuantity kg/MonthTotal RevenueTotal CostMarginal RevenueMarginal CostAverage CostProfit 0.4810048410.480.230.417
0.4820096570.480.160.2939
0.48300144770.480.20.2667
0.484001921060.480.290.2786
0.485002401450.480.390.2995
0.486002881990.480.540.3389
0.487003362940.480.950.4242
0.488003845010.482.070.63-117

The gardener is operating in a Perfect Competition Market. The market price is set at Marginal Revenue point. The gardener is selling any quantity at a price set by market, which is here \$ 0.48. The gardener is a price taker only.

Answer to the question no. 2.b
The rule of Profit Maximization is the point where: Marginal Revenue =Marginal Cost. In the above table we can see at an output point of 500 kg, the MR and MC is closest. Moreover if we look at the profit column we can see highest profit amount is \$ 0.95 which corresponds to output quantity of 500kg.

Answer to the question no. 2.c
On graph, the profit maximization point is indicated as b where corresponding output is in between 500 to 600 kg. The profit area is indicated as a, b, c & d. As the average cost remains below MR, the business is making profit.

Answer to the question no. 2.d
Average Cost at Profit Maximization output is 0.29. At this price the gardener will reach at breakeven point of his business. Output is 500kg.

Answer to the question no. 3.a

Total Revenue and Total Cost Curve

Answer to the question no. 3.b...