ECON 201 INTRODUCTION TO ECONOMICS

HW III

1. Consider a firm that has built a small plant which costs $4,000. Each unit requires $2 worth of material.
Each workercosts $7 per hour.

(a) Based on the information above fill in the table

Number     Output     FC     SRVC     SRTC     MC     SRAFC     SRAVC     SRATC
Of workers
    0                 0
    50            400
100            900
150          1300
200          1600
250          1800
300          1900
350           1950

(b) Graph all the cost curves that you have calculated

(i) if wages fell to $5
(ii) if material costs increased to $3
(iii)if the factory had cost $8,000 to built

2. In the short run a firm has fixed costs of $10,000 (building lease, insurance etc) and a constant marginal cost equals to the number of units produced ( that is MC of one unit=$1, MC of two units=$2 etc). The firm is selling widgets and the widget industry is perfectly competitive
(a) If the price of widgets is $20, how many widgets will this firm produce? What is the average cost per widget? What is the firm's profit or loss
(b) Will the firm shut down in the short run? Why or why not?
(c) If the market price does not change, will the firm sign a new lease and stay in business when the current lease expires?

3. Do the questions (1), (2) (3) and (7) on page 205 (O'Sullivan & Sheffrin)