Download Classes no 8 and 9. Total revenue, total cost and profit Economic

Classes no 8 and 9.
Total revenue, total cost and profit
Economic profit versus accounting profit
Cost of production
Task 1.
Mr. Smith runs a private business. In last year his total revenues were equal 55000£, and direct costs
were equal 27000£. In last year he invested 25000£ in his business. At the same time the interest
rate was equal to 10%. If Mr. Smith had decided to work for another company, he could earned
21000£. Calculate:
a) Accounting cost
b) Accounting profit
c) Opportunity costs
d) Total economic cost
e) Total economic profit.
Task 2.
You run a service firm. In last year your TR were equal to 400 000 PLN, and direct costs were equal to
100 000 PLN. If you had decided to work for another company, you could earned 60 000 PLN in a
year time. If you had rent the apartment, in which your company is located, you could gained 70 000
PLN last year. Knowing that, calculate:
a) Accounting cost
b) Accounting profit
c) Opportunity costs
d) Total economic cost
e) Total economic profit.
Task 3.
Your aunt is thinking about opening a hardware store. She estimates that it would cost $500 000 per
year to rent and buy the stock. In addition, she would have to quit her $50 000 per year job as an
accountant.
a) Define her opportunity cost.
b) What is your aunt’s opportunity cost running a hardware store for a year? If your aunt thought
she could sell $510 000 worth or merchandise in a year, should she open the shore? Explain.
Task 4.
The table presents the marginal costs and revenues in the firm.
a) Draw the MC and MR curves (e.g. the MR=72 should be understood as the value obtained
when the production is increased from 0 to 1 unit per week)
b) What is the approximate value of the production that would maximize the firm’s profit?
c) What is the approximate value of production that would maximize TR?
Q (production:
units per week)
Marginal revenue (MR) [£]
Marginal cost (MC) [£]
0
1
2
3
4
5
72
56
40
24
8
17
15
25
40
60
Microeconomics
Dr Anna Kowalska-Pyzalska
Classes no 8 and 9.
Total revenue, total cost and profit
Economic profit versus accounting profit
Cost of production
Task 5.
Compete:
a) Marginal cost at each level of production
b) Total and marginal revenue at each level of production
c) Profit at each level of production
d) At what level of production is the profit the highest?
Q production of units
per week
Price
TC
1
2
3
4
5
6
25
23
20
18
15
12,5
10
23
38
55
75
98
TR
Profit
MC
MR
Task 6.
Demand curve is described by the following equation: P=500-4Qd, where: P is the price, and Qd is
the quantity demanded. What are the equations of the total revenue and marginal revenue?
Task 7.
Demand curve is described by the following equation: P=1000-2Qd, where P is the price and Qd is the
quatnity demanded. What is the maximum value of the total revenue?
Task 8.
The company has constant fixed cost (FC) 45 $. Her short-run average variable cost (SAVC) are
presented in the table below.
a) Fill in the table
b) Draw the cost curves.
Q
(production
unit/week)
SAVC
1
2
3
4
5
6
17
15
14
15
19
29
SAFC
SATC
Microeconomics
Dr Anna Kowalska-Pyzalska
STC
SMC
Classes no 8 and 9.
Total revenue, total cost and profit
Economic profit versus accounting profit
Cost of production
Task 9.
The table presents long-run costs at the various level of production.
a) Calculate the long-run average total cost (LATC)and long-run marginal cost (LMC)
b) Draw the LATC and LMC curves
c) At what level of production is the LATC the lowest?
d) At what level of production are both kind of costs equal?
Q (production
unit/week)
TC
0
1
2
3
4
5
6
0
32
48
82
140
228
352
LATC
LMC
Task 10.
The firm produces 3 types of notebooks: A, B & C. Knowing that the TFC for the whole company are
equal to 300, calculate:
a) Is the production is profitable?
b) Which products brings the highest profit?
Types of
notebooks
Q production
(units/week)
P
Price
AVC
A
B
C
100
300
200
20
10
15
15
8
10
Task 11.
The table presents the costs of production.
a) Fill in the table
b) Is the production is profitable?
c) Which products brings the highest profit?
Products
A
B
C
Q
[units/week]
100
P
FC
100
45
50
100
500
AFC
VC
AVC
TC
ATC
50
60
Microeconomics
Dr Anna Kowalska-Pyzalska
TR
2000
25
70
1000
Profit
Unit
profit
Classes no 8 and 9.
Total revenue, total cost and profit
Economic profit versus accounting profit
Cost of production
Task 12.
Calculate:
a) VC if: Profit=100, TR = 150, FC = 25.
b) AVC, if ATC = 15, TC = 540, FC = 40.
c) Unit profit if, price P = 180, TC = 120, AVC = 20, VC =100.
d) Unit profit and FC if, P price =180, TC = 216, AVC = 30, VC = 180.
Task 13.
Consider the following cost information for a pizzeria:
Q (dozezns)
0
1
2
3
4
5
6
Total cost (TC) [$]
300
350
390
420
450
490
540
Variable cost (VC) [$]
0
50
90
120
150
190
240
a) What is the pizzeria’s fixed cost?
b) Construct a table in which you calculate the marginal cost per dozen pizzas using the
information on total cost. Also calculate the marginal cost per dozen pizzas using the
information on variable cost. What is the relationship between these set of numbers?
Task 14.
You are thinking about setting up a lemonade stand. The stand itself costs $200. The ingredients for
each cup of lemonade cost $0.50.
a. What is your fixed cost of doing business? What is your variable cost per cup?
b. Construct a table showing your total cost, average total cost, and marginal cost for output
levels varying from zero to 10 gallons. (Hint: There are 16 cups in a gallon.) Draw the three
cost curves.
Task 15.
Your cousin Vinnie owns a painting company with fixed costs of $200 and the following schedule for
variable
costs:
Quantity of houses painted per month
1
2
3
4
5
6
7
VC [$]
10
20
40
80
160
320
640
a) Calculate average fixed cost, average variable cost, and average total cost for each quantity.
What is the efficient scale of the painting company?
Microeconomics
Dr Anna Kowalska-Pyzalska
Classes no 8 and 9.
Total revenue, total cost and profit
Economic profit versus accounting profit
Cost of production
Task 16.
Healthy Harry’s Juice Bar has the following cost schedules:
Q
VC [$]
TC [$]
0
0
30
1
10
40
2
25
55
3
45
75
4
70
100
5
100
130
6
135
165
a) Calculate average variable cost, average total cost, and marginal cost for each quantity.
b) Graph all three curves. What is the relationship between the marginal-cost curve and the
average total-cost curve? Between the marginal-cost curve and the average-variable-cost
curve? Explain.
Task 17.
In the table various kind of costs are presented. Fill in the missing data i draw the cost curves.
Q
0
1
2
3
4
5
6
7
8
9
10
TC
FC
VC
ATC
AVC
MC
80
50
175
20
43,8
40
36
48,3
60
310
440
80
750
200
Task 18.
Consider the following table of long-run total cost for three different firms:
Quantity
1
2
3
4
5
FIRM A [$]
60
70
80
90
100
FIRM B $]
11
24
39
56
75
FIRM C [$]
21
34
49
66
85
6
110
96
106
Does each of these firms experience economies of scale or diseconomies of scale?
Microeconomics
Dr Anna Kowalska-Pyzalska
7
120
119
129
Classes no 8 and 9.
Total revenue, total cost and profit
Economic profit versus accounting profit
Cost of production
Task 19.
The firm has establised the level of production. Now the firm is checking the relations between the
average costs in short- and long-run:
LATC = 12£
SAFC = 6£
SAVC = 11£
SATC = 17£.
Mark the appropriate decisions in short- and long-run, which the company should make about its
further production at the different price levels:
SHORT-RUN DECISIONS
Price [£]
Continue profitable
Produce even if there are
Stop the production
production
losses
18
5
7
13
11,5
LONG-RUN DECISIONS
Continue profitable
Produce even if there are
Leave the market
production
losses
18
5
7
13
11,5
Microeconomics
Dr Anna Kowalska-Pyzalska