Assignment 16807

Problem A
Choco Delite is a manufacturer of fine chocolates. Its monthly
rental expense is $1,000,000. It also has $2 million in fixed labor
costs. Its marginal costs are $.70 per chocolate bar.
If sales fall by 30 percent from 2 million chocolate bars per
month to 1,400,000 chocolate bars per month, what happens to the average
fixed cost (AFC) per chocolate bar?
What happens to the marginal cost (MC) per chocolate bar?
What about the minimum amount that can be charged to break even on these costs?
Problem B
Assume that the cost data in the table below are for a purely competitive producer:

Cost Data

Total
Product
Average
Fixed Cost
Average
Variable Cost
Average
Total Cost
Marginal
Cost
Price

Price–ATC

0

1
$25.00
$10.00
$35.00
$10.00

2
12.50
8.00
20.50
6.00

3
8.33
6.67
13.00
4.00

4
6.25
5.50
11.75
2.00

5
5.00
4.80
9.80
2.00

6
4.17
4.50
8.67
3.00

7
3.57
4.57
8.14
5.00

8
3.13
5.00
8.13
8.00

9
2.78
6.00
8.76
14.00

10
2.50
7.50
10.00
21.00

Respond to the following:
How much economic profit can be achieved at each level of output?
If price is $10.00, how much will be produced in the short run?
Using the price of $4, answer the previous questions.
Using the price of $14, answer the previous questions.
Problem C
Assume that a purely competitive firm is selling 2,000 television
sets a day at a cost of $90,000. Assume that if the firm sells 1,600
units per day, its total cost would be $60,000, and if it sold 1,000
units per day, it would have a total cost of $55,000.
Calculate the average total cost at these different sales levels.
Assuming that the cost structure for every firm in the industry is
identical, do you think that the industry could be in long-run
equilibrium?
If the industry is perfectly competitive, what would be the long-run equilibrium market price?
If that price is the market price and every firm in the industry is earning a normal profit of 15%, what would be the profit?
Problem D
If a hypothetical company has revenues less than its cost, should it shut down?
If the company decides to shut down, is that decision final?
Provide a real-world example to support your answer.
ResourcesGean, F.,