Microeconomics and mathematics (with answers) 5 Cost, revenue and profit

Size: px
Start display at page:

Download "Microeconomics and mathematics (with answers) 5 Cost, revenue and profit"

Transcription

1 Microeconomics and mathematics (with answers) 5 Cost, revenue and profit Remarks: = uantity Costs TC = Total cost (= AC * ) AC = Average cost (= TC ) MC = Marginal cost [= (TC)'] FC = Fixed cost VC = (Total) variable cost AVC = Average variable cost (= VC ) TC = FC + VC Revenues TR = Total revenue (= AR * ) AR = Average revenue (price) (= TR ) MR = Marginal revenue [= (TR)' Profit = π π = TR - TC 5.1 Total and average cost Fixed cost = 1200 Average variable cost = Calculate total cost if 300 units are produced Graph total cost as a function of ( = 0,100,200,...600) Graph average cost as a function of ( = 100,200,...600). 5.2 Cost, revenue, profit, break-even point A firm has fixed cost of 300, variable cost of 10 per unit and sells a unit at the price of Graph total cost (FC, VC), total revenue and show profit/loss ( = 0,10,...100) in the same diagram Calculate the break-even point (π = 0):, cost and revenue 5.23 Calculate the quantity where profit is 60. UESTI05.DOC Page 1 (of 5) 5 Cost, revenue and profit 1st June 2012

2 5.3 Profit, break-even point 5.31 Express profit (= TR - TC) as a function of by using additionally: Fixed cost (FC) Average variable cost (AVC) Average revenue (AR) 5.32 Calculate profit (loss) by using the the equation obtained in FC = 240 AVC = 5 AR (= Price) = 8 = Use the equation obtained in 5.31 and the numbers of 5.32 to calculate if we target a profit of Calculate the break-even point using the equation obtained in 5.31 and the numbers of Demand and revenue 8 P Demand (= Price, AR) Find the demand function (P =...) Find the total revenue function Find the marginal revenue function Calculate average revenue, total revenue and marginal revenue if = 3 = Demand and revenue 5.51 Demand: P = 50-5 Find the total revenue and the marginal revenue functions. UESTI05.DOC Page 2 (of 5) 5 Cost, revenue and profit 1st June 2012

3 5.5 cont Calculate marginal revenue if = 2 = Graph demand, marginal revenue and total revenue as follows: P MR TR Which relation exists between MR = 0 and TR? 5.6 Fixed cost, demand and profit 10 A firm has only fixed cost of 20. Demand: P = We suppose that the firm can choose. Which results in the highest profit and how much is this profit? 5.7 Cost Total cost = Find the equation for average cost and for marginal cost. UESTI05.DOC Page 3 (of 5) 5 Cost, revenue and profit 1st June 2012

4 5.8 Cost Average cost = Find the equation for marginal cost Output = 30. Calculate total cost, average cost and marginal cost Another firm wants to buy from us an additional unit for the price of 350. Would you sell the additional unit? 5.9 Cost TC 30 Total cost Find the equation for total cost (TC) Find the equation for average cost and for marginal cost Marginal revenue and price elasticity of demand (e) 24 AR MR MR Demand (= AR, Price) Calculate the price elasticity of demand (e) if MR = 0 (at the point = 4). (Formula for e = d dp * P ) UESTI05.DOC Page 4 (of 5) 5 Cost, revenue and profit 1st June

5 5.11 From marginal revenue to total revenue and average revenue Marginal revenue = 20-5 Find - by integration - the equation for total revenue (c = 0), then the equation for average revenue From marginal cost to total cost and to average cost; fixed and variable cost Marginal cost = Find - by integration - the equation for total cost Which part of total cost is fixed, which part is variable? Find the equation for average cost Calculate total cost, average cost and marginal cost if = 20. Suppose that c = From marginal cost and marginal revenue to total cost and total revenue; profit Marginal cost = (Fixed cost c = 50) Marginal revenue = 20 - (c = 0) Find - by integration - the equations for total cost and total revenue Calculate profit if = 3. Answers. Click here! UESTI05.DOC Page 5 (of 5) 5 Cost, revenue and profit 1st June 2012

6 Answers Microeconomics and mathematics 5 Cost, revenue and profit 5.1 Total and average cost 5.11 TC = *300 = / Total cost Average cost Cost, revenue, profit, break-even point 5.21 Graph TC TR 1500 TR TC 800 Loss Profit Variable cost Fixed cost 5.22 Break-even point: = 16-6 = = 50 Cost/revenue: *50 = ( = 60): = 16 = 60 ANSWER05.DOC Page 1 (of 5) 5 Cost, revenue and profit 13/06/2016

7 5.3 Profit, break-even point 5.31 = TR - TC = AR* - FC - *AVC = - FC + (AR - AVC) 5.32 = (8-5) = - 30 ( Loss) = (8-5) - 3 = = Break-even point ( = 0): 0 = (8-5) - 3 = = Demand and revenue 5.41 P (= AR) = TR = AR* = MR = (TR)' = AR TR MR = = Demand and revenue 5.51 TR = P* = MR = (TR)' = MR (if = 2): 50-10*2 = 30 MR (if = 5): = Page If MR = 0, TR is at its maximum. 5.6 Fixed cost, demand and profit TC = 20 TR = *P = MR = (TR)' = 24-6 If MR = 0 then = 4 (if = 4): TR - TC = 24*4-3* = 28 ANSWER05.DOC Page 2 (of 5) 5 Cost, revenue and profit 13/06/2016

8 5.5 cont Graph demand, marginal revenue and total revenue: P MR P (=AR) MR 10 TR TR (TR)' = MR = Cost AC = TC 10 = MC = (TC)' = Cost 5.81 TC = AC* = MC = (TC)' = TC = 6* *30 = 5558 AC = = (or AC = 6* = 185.3) MC = 12* = No, I would not sell because MC > MR (P). ANSWER05.DOC Page 3 (of 5) 5 Cost, revenue and profit 13/06/2016

9 5.9 Cost 5.91 TC = = AC = TC = MC = (TC)' = Marginal revenue and price elasticity of demand (e) P = 24-3 (Demand) 3 = 24 - P = P d dp = P = 24-3*4 = 12 P = 12 4 = 3 d dp * P = * 3 = - 1 e = From marginal revenue to total revenue and average revenue TR = I(20-5)d = AR = TR = From marginal cost to total cost and to average cost; fixed and variable cost TC = I( )d = c Fixed part: c Variable part: AC = c TC = * = 4187 AC = = 209 (or: = 209) MC = * = 466 ANSWER05.DOC Page 4 (of 5) 5 Cost, revenue and profit 13/06/2016

10 5.13 From marginal cost and marginal revenue to total cost and total revenue; profit TC = I( )d = TR = I(20 - )d = Profit = TR - TC ( = 3): TR = 20* = 55.5 TC = 10* * = 44 = = 11.5 Back to questions. Click here! ANSWER05.DOC Page 5 (of 5) 5 Cost, revenue and profit 13/06/2016

PART A: For each worker, determine that worker's marginal product of labor.

PART A: For each worker, determine that worker's marginal product of labor. ECON 3310 Homework #4 - Solutions 1: Suppose the following indicates how many units of output y you can produce per hour with different levels of labor input (given your current factory capacity): PART

More information

Break-even analysis. On page 256 of It s the Business textbook, the authors refer to an alternative approach to drawing a break-even chart.

Break-even analysis. On page 256 of It s the Business textbook, the authors refer to an alternative approach to drawing a break-even chart. Break-even analysis On page 256 of It s the Business textbook, the authors refer to an alternative approach to drawing a break-even chart. In order to survive businesses must at least break even, which

More information

Variable Costs. Breakeven Analysis. Examples of Variable Costs. Variable Costs. Mixed

Variable Costs. Breakeven Analysis. Examples of Variable Costs. Variable Costs. Mixed Breakeven Analysis Variable Vary directly in proportion to activity: Example: if sales increase by 5%, then the Variable will increase by 5% Remain the same, regardless of the activity level Mixed Combines

More information

Microeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions.

Microeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions. Microeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions. Reference: Gregory Mankiw s Principles of Microeconomics, 2 nd edition, Chapter 13. Long-Run

More information

MATH MODULE 5. Total, Average, and Marginal Functions. 1. Discussion M5-1

MATH MODULE 5. Total, Average, and Marginal Functions. 1. Discussion M5-1 MATH MODULE Total, Average, and Marginal Functions 1. Discussion A very important skill for economists is the ability to relate total, average, and marginal curves. Much of standard microeconomics involves

More information

Chapter 7: The Costs of Production QUESTIONS FOR REVIEW

Chapter 7: The Costs of Production QUESTIONS FOR REVIEW HW #7: Solutions QUESTIONS FOR REVIEW 8. Assume the marginal cost of production is greater than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing?

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. Principles of Microeconomics, Quiz #5 Fall 2007 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) Perfect competition

More information

MPP 801 Monopoly Kevin Wainwright Study Questions

MPP 801 Monopoly Kevin Wainwright Study Questions MPP 801 Monopoly Kevin Wainwright Study Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The marginal revenue facing a monopolist A) is

More information

SHORT-RUN PRODUCTION

SHORT-RUN PRODUCTION TRUE OR FALSE STATEMENTS SHORT-RUN PRODUCTION 1. According to the law of diminishing returns, additional units of the labour input increase the total output at a constantly slower rate. 2. In the short-run

More information

Chapter 6: Break-Even & CVP Analysis

Chapter 6: Break-Even & CVP Analysis HOSP 1107 (Business Math) Learning Centre Chapter 6: Break-Even & CVP Analysis One of the main concerns in running a business is achieving a desired level of profitability. Cost-volume profit analysis

More information

Pure Competition urely competitive markets are used as the benchmark to evaluate market

Pure Competition urely competitive markets are used as the benchmark to evaluate market R. Larry Reynolds Pure Competition urely competitive markets are used as the benchmark to evaluate market P performance. It is generally believed that market structure influences the behavior and performance

More information

Chapter 8. Competitive Firms and Markets

Chapter 8. Competitive Firms and Markets Chapter 8. Competitive Firms and Markets We have learned the production function and cost function, the question now is: how much to produce such that firm can maximize his profit? To solve this question,

More information

Massachusetts Institute of Technology Department of Economics. 14.01 Principles of Microeconomics Exam 2 Tuesday, November 6th, 2007

Massachusetts Institute of Technology Department of Economics. 14.01 Principles of Microeconomics Exam 2 Tuesday, November 6th, 2007 Page 1 of 8 Massachusetts Institute of Technology Department of Economics 14.01 Principles of Microeconomics Exam Tuesday, November 6th, 007 Last Name (Please print): First Name: MIT ID Number: Instructions.

More information

CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY

CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of -.0. It has a constant marginal cost of $0 per unit and sets a price to maximize

More information

Economics 10: Problem Set 3 (With Answers)

Economics 10: Problem Set 3 (With Answers) Economics 1: Problem Set 3 (With Answers) 1. Assume you own a bookstore that has the following cost and revenue information for last year: - gross revenue from sales $1, - cost of inventory 4, - wages

More information

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen October 15, 2007. Lecture 13. Cost Function

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen October 15, 2007. Lecture 13. Cost Function Short-Run Cost Function. Principles of Microeconomics, Fall Chia-Hui Chen October, ecture Cost Functions Outline. Chap : Short-Run Cost Function. Chap : ong-run Cost Function Cost Function et w be the

More information

We will study the extreme case of perfect competition, where firms are price takers.

We will study the extreme case of perfect competition, where firms are price takers. Perfectly Competitive Markets A firm s decision about how much to produce or what price to charge depends on how competitive the market structure is. If the Cincinnati Bengals raise their ticket prices

More information

Price Discrimination and Two Part Tariff

Price Discrimination and Two Part Tariff Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #6 Price Discrimination and Two Part Tariff Friday - October 29, 2004 OUTLINE OF TODAY S RECITATION 1. Conditions

More information

Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen

Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen Chapter 5 Perfect Competition Chapter Objectives! In this chapter you will: " Consider the four market structures, and the main differences

More information

Pricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young

Pricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Chapter 9 Pricing and Output Decisions: i Perfect Competition and Monopoly M i l E i E i Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Pricing and

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. Principles of Microeconomics Fall 2007, Quiz #6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) A monopoly is

More information

Table of Contents MICRO ECONOMICS

Table of Contents MICRO ECONOMICS economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...

More information

Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9

Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #2 must be completed within the allocated time (i.e., between

More information

Profit maximization in different market structures

Profit maximization in different market structures Profit maximization in different market structures In the cappuccino problem as well in your team project, demand is clearly downward sloping if the store wants to sell more drink, it has to lower the

More information

Technology, Production, and Costs

Technology, Production, and Costs Chapter 10 Technology, Production, and Costs 10.1 Technology: An Economic Definition 10.1 LEARNING OBJECTIVE Learning Objective 1 Define technology and give examples of technological change. A firm s technology

More information

Examples on Monopoly and Third Degree Price Discrimination

Examples on Monopoly and Third Degree Price Discrimination 1 Examples on Monopoly and Third Degree Price Discrimination This hand out contains two different parts. In the first, there are examples concerning the profit maximizing strategy for a firm with market

More information

An Introduction to Calculus. Jackie Nicholas

An Introduction to Calculus. Jackie Nicholas Mathematics Learning Centre An Introduction to Calculus Jackie Nicholas c 2004 University of Sydney Mathematics Learning Centre, University of Sydney 1 Some rules of differentiation and how to use them

More information

Econ Wizard User s Manual

Econ Wizard User s Manual 1 Econ Wizard User s Manual Kevin Binns Matt Friedrichsen Purpose: This program is intended to be used by students enrolled in introductory economics classes. The program is meant to help these students

More information

A Detailed Price Discrimination Example

A Detailed Price Discrimination Example A Detailed Price Discrimination Example Suppose that there are two different types of customers for a monopolist s product. Customers of type 1 have demand curves as follows. These demand curves include

More information

Marginal cost. Average cost. Marginal revenue 10 20 40

Marginal cost. Average cost. Marginal revenue 10 20 40 Economics 101 Fall 2011 Homework #6 Due: 12/13/2010 in lecture Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework

More information

volume-profit relationships

volume-profit relationships Slide 1.3.1 1. Accounting for decision making 1.3 Cost-volume volume-profit relationships Slide 1.3.2 Introduction This chapter examines one of the most basic planning tools available to managers: cost

More information

Market Structure: Perfect Competition and Monopoly

Market Structure: Perfect Competition and Monopoly WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit

More information

a. What is the total revenue Joe can earn in a year? b. What are the explicit costs Joe incurs while producing ten boats?

a. What is the total revenue Joe can earn in a year? b. What are the explicit costs Joe incurs while producing ten boats? Chapter 13 1. Joe runs a small boat factory. He can make ten boats per year and sell them for 25,000 each. It costs Joe 150,000 for the raw materials (fibreglass, wood, paint, and so on) to build the ten

More information

Overview: Transfer Pricing

Overview: Transfer Pricing Overview: Transfer Pricing Framework and Economic Principles Cases Considered No outside market for upstream good Competitive outside market for upstream good Market power in outside market for upstream

More information

CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY

CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY TEACHING NOTES This chapter begins by explaining what we mean by a competitive market and why it makes sense to assume that firms try to maximize profit.

More information

Production and Cost Analysis

Production and Cost Analysis Production and Cost Analysis The entire production process begins with the supply of factors of production or inputs used towards the production of a final good we all consume in the final good market.

More information

Learning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to:

Learning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Learning Objectives After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Discuss three characteristics of perfectly competitive

More information

Pre-Test Chapter 21 ed17

Pre-Test Chapter 21 ed17 Pre-Test Chapter 21 ed17 Multiple Choice Questions 1. Which of the following is not a basic characteristic of pure competition? A. considerable nonprice competition B. no barriers to the entry or exodus

More information

C 6 - ACRONYMS notesc6.doc Instructor s Supplemental Information Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM

C 6 - ACRONYMS notesc6.doc Instructor s Supplemental Information Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM C 6 - ACRONYMS notesc6.doc Instructor s Supplemental Information ACRONYMS (ABBREVIATIONS) FOR USE WITH MANAGERIAL ACCOUNTING RELATING TO COST-VOLUME-PROFIT ANALYSIS. CM Contribution Margin in total dollars

More information

Final Exam 15 December 2006

Final Exam 15 December 2006 Eco 301 Name Final Exam 15 December 2006 120 points. Please write all answers in ink. You may use pencil and a straight edge to draw graphs. Allocate your time efficiently. Part 1 (10 points each) 1. As

More information

Lab 12: Perfectly Competitive Market

Lab 12: Perfectly Competitive Market Lab 12: Perfectly Competitive Market 1. Perfectly competitive market 1) three conditions that make a market perfectly competitive: a. many buyers and sellers, all of whom are small relative to market b.

More information

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot

More information

CEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC.

CEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC. 1 I S L 8 0 5 U Y G U L A M A L I İ K T İ S A T _ U Y G U L A M A ( 4 ) _ 9 K a s ı m 2 0 1 2 CEVAPLAR 1. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market

More information

Theory of Perfectly Competitive Markets

Theory of Perfectly Competitive Markets Economics 147 John F. Stewart Theory of Perfectly Competitive Markets University of North Carolina Chapel Hill Theory: The Structure of an Economic Model Economic theory is based on deductive logic, if

More information

Exhibit 7.5: Graph of Total Costs vs. Quantity Produced and Total Revenue vs. Quantity Sold

Exhibit 7.5: Graph of Total Costs vs. Quantity Produced and Total Revenue vs. Quantity Sold 244 13. 7.5 Graphical Approach to CVP Analysis (Break-Even Chart) A break-even chart is a graphical representation of the following on the same axes: 1. Fixed costs 2. Total costs at various levels of

More information

Revenue Structure, Objectives of a Firm and. Break-Even Analysis.

Revenue Structure, Objectives of a Firm and. Break-Even Analysis. Revenue :The income receipt by way of sale proceeds is the revenue of the firm. As with costs, we need to study concepts of total, average and marginal revenues. Each unit of output sold in the market

More information

GETTING STARTED IN THE MEAT GOAT BUSINESS

GETTING STARTED IN THE MEAT GOAT BUSINESS GETTING STARTED IN THE MEAT GOAT BUSINESS Bulletin I, Vol. II An Enterprise Budget For Meat Goat Producer s: Its Characteristics and Importance By Gilbert Queeley and Angela McKenzie-Jakes Extension Animal

More information

MANAGEMENT ACCOUNTING Cost-Volume-Profit Analysis

MANAGEMENT ACCOUNTING Cost-Volume-Profit Analysis MANAGEMENT ACCOUNTING Cost-Volume-Profit Analysis Zofia Krokosz-Krynke, Ph.D., MBA zofia.krokosz-krynke@pwr.edu.pl Wroclaw University of Technology, Building B4 Room 521 http://www.ioz.pwr.edu.pl/pracownicy/krokosz/

More information

01 In any business, or, indeed, in life in general, hindsight is a beautiful thing. If only we could look into a

01 In any business, or, indeed, in life in general, hindsight is a beautiful thing. If only we could look into a 01 technical cost-volumeprofit relevant to acca qualification paper F5 In any business, or, indeed, in life in general, hindsight is a beautiful thing. If only we could look into a crystal ball and find

More information

Finance for Cultural Organisations Lecture 9. Capital Budgeting: Project Analysis and Evaluation

Finance for Cultural Organisations Lecture 9. Capital Budgeting: Project Analysis and Evaluation Finance for Cultural Organisations Lecture 9. Capital Budgeting: Project Analysis and Evaluation Lecture 9. Capital Budgeting: Project Analysis & Evaluation Understand forecasting risk and sources of value

More information

or, put slightly differently, the profit maximizing condition is for marginal revenue to equal marginal cost:

or, put slightly differently, the profit maximizing condition is for marginal revenue to equal marginal cost: Chapter 9 Lecture Notes 1 Economics 35: Intermediate Microeconomics Notes and Sample Questions Chapter 9: Profit Maximization Profit Maximization The basic assumption here is that firms are profit maximizing.

More information

Practice Questions Week 8 Day 1

Practice Questions Week 8 Day 1 Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants

More information

c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?

c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run? Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm

More information

Chapter. Project Analysis and Evaluation. McGraw-Hill/Irwin. Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter. Project Analysis and Evaluation. McGraw-Hill/Irwin. Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 11 Project Analysis and Evaluation McGraw-Hill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Key Concepts and Skills Understand forecasting risk and sources of value

More information

Math-in-CTE Lesson Plan: Marketing

Math-in-CTE Lesson Plan: Marketing Math-in-CTE Lesson Plan: Marketing Lesson Title: Break-Even Point Lesson 01 Occupational Area: Marketing Ed./Accounting CTE Concept(s): Math Concepts: Lesson Objective: Fixed Costs, Variable Costs, Total

More information

Economics 203: Intermediate Microeconomics I Lab Exercise #11. Buy Building Lease F1 = 500 F1 = 750 Firm 2 F2 = 500 F2 = 400

Economics 203: Intermediate Microeconomics I Lab Exercise #11. Buy Building Lease F1 = 500 F1 = 750 Firm 2 F2 = 500 F2 = 400 Page 1 March 19, 2012 Section 1: Test Your Understanding Economics 203: Intermediate Microeconomics I Lab Exercise #11 The following payoff matrix represents the long-run payoffs for two duopolists faced

More information

Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect

More information

AP Microeconomics Review

AP Microeconomics Review AP Microeconomics Review 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry 3. Natural Monopoly with Fair-Return

More information

Practice Questions Week 6 Day 1

Practice Questions Week 6 Day 1 Practice Questions Week 6 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Economists assume that the goal of the firm is to a. maximize total revenue

More information

WHETHER OPERATING as nonprofit organizations or as

WHETHER OPERATING as nonprofit organizations or as i a CHAPTER BREAK-EVEN ANALYSIS WHETHER OPERATING as nonprofit organizations or as investor-owned facilities, health care organizations must generate revenue to pay for the costs of providing services.

More information

Monopoly and Monopsony Labor Market Behavior

Monopoly and Monopsony Labor Market Behavior Monopoly and Monopsony abor Market Behavior 1 Introduction For the purposes of this handout, let s assume that firms operate in just two markets: the market for their product where they are a seller) and

More information

Break-even Analysis. Thus, if we assume that price and AVC are constant, (1) can be rewritten as follows TFC AVC

Break-even Analysis. Thus, if we assume that price and AVC are constant, (1) can be rewritten as follows TFC AVC Break-even Analysis An enterprise, whether or not a profit maximizer, often finds it useful to know what price (or output level) must be for total revenue just equal total cost. This can be done with a

More information

Cost of Production : An Example

Cost of Production : An Example University of California, Berkeley Spring 008 ECON 00A Section 0, Cost of Production : An Example What you should get out of this example: Understand the technical derivation of optimal inputs in Cost

More information

INCORPORATION OF LEARNING CURVES IN BREAK-EVEN POINT ANALYSIS

INCORPORATION OF LEARNING CURVES IN BREAK-EVEN POINT ANALYSIS Delhi Business Review Vol. 2, No. 1, January - June, 2001 INCORPORATION OF LEARNING CURVES IN BREAK-EVEN POINT ANALYSIS Krishan Rana Suneel Maheshwari Ramchandra Akkihal T HIS study illustrates that a

More information

Theory of the Firm. The Firm s Problem: Costs and Profits

Theory of the Firm. The Firm s Problem: Costs and Profits Theory of the Firm The Firm s Problem: Costs and Profits Firm s Problem: Description We consider a firm producing a single good Q using two inputs: L (labour) and K (capital). The technology of the firm

More information

Linear Equations and Inequalities

Linear Equations and Inequalities Linear Equations and Inequalities Section 1.1 Prof. Wodarz Math 109 - Fall 2008 Contents 1 Linear Equations 2 1.1 Standard Form of a Linear Equation................ 2 1.2 Solving Linear Equations......................

More information

Microeconomics Topic 7: Contrast market outcomes under monopoly and competition.

Microeconomics Topic 7: Contrast market outcomes under monopoly and competition. Microeconomics Topic 7: Contrast market outcomes under monopoly and competition. Reference: N. Gregory Mankiw s rinciples of Microeconomics, 2 nd edition, Chapter 14 (p. 291-314) and Chapter 15 (p. 315-347).

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that

More information

Lecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization

Lecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization Lecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization 2.1. Introduction Suppose that an economic relationship can be described by a real-valued

More information

Costs of Production and Profit Maximizing Production: 3 examples.

Costs of Production and Profit Maximizing Production: 3 examples. Costs of Production and Profit Maximizing Production: 3 examples. In this handout, we analyze costs and profit maximizing output decisions by looking at three different possible costs structures. Three

More information

EXERCISE 27 WHEN THIRD-DEGREE PRICE DISCRIMINATION HELPS (ALMOST) EVERYONE

EXERCISE 27 WHEN THIRD-DEGREE PRICE DISCRIMINATION HELPS (ALMOST) EVERYONE When hird-degree Price Discrimination Helps (almost) Everyone 1 EXERCISE 27 WHEN HIRD-DEGREE PRICE DISCRIMINAION HELPS (ALMOS) EVERYONE Can be answered and the figure drawn either manually or on a spreadsheet

More information

Production and Inventory Management

Production and Inventory Management Production and Inventory Management Production and Inventory Management Understand Cost Relationships Economic efficiency (profits) Understanding of relationships helps managers Effective production decisions

More information

Business and Economics Applications

Business and Economics Applications Business and Economics Applications Most of the word problems you do in math classes are not actually related to real life. Textbooks try to pretend they are by using real life data, but they do not use

More information

AP Microeconomics Chapter 12 Outline

AP Microeconomics Chapter 12 Outline I. Learning Objectives In this chapter students will learn: A. The significance of resource pricing. B. How the marginal revenue productivity of a resource relates to a firm s demand for that resource.

More information

CE2451 Engineering Economics & Cost Analysis. Objectives of this course

CE2451 Engineering Economics & Cost Analysis. Objectives of this course CE2451 Engineering Economics & Cost Analysis Dr. M. Selvakumar Associate Professor Department of Civil Engineering Sri Venkateswara College of Engineering Objectives of this course The main objective of

More information

1 Economic Application of Derivatives

1 Economic Application of Derivatives 1 Economic Application of Derivatives deriv-applic.te and.pdf April 5, 2007 In earlier notes, we have already considered marginal cost as the derivative of the cost function. That is mc() = c 0 () How

More information

1 Monopoly Why Monopolies Arise? Monopoly is a rm that is the sole seller of a product without close substitutes. The fundamental cause of monopoly is barriers to entry: A monopoly remains the only seller

More information

Homework 3, Solutions Managerial Economics: Eco 685

Homework 3, Solutions Managerial Economics: Eco 685 Homework 3, Solutions Managerial Economics: Eco 685 Question 1 a. Second degree since we have a quantity discount. For 2 GB the cost is $15 per GB, for 5 GB the cost is $10 per GB, and for 10 GB the cost

More information

Figure 1, A Monopolistically Competitive Firm

Figure 1, A Monopolistically Competitive Firm The Digital Economist Lecture 9 Pricing Power and Price Discrimination Many firms have the ability to charge prices for their products consistent with their best interests even thought they may not be

More information

Chapter 3 Quantitative Demand Analysis

Chapter 3 Quantitative Demand Analysis Managerial Economics & Business Strategy Chapter 3 uantitative Demand Analysis McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. The Elasticity Concept

More information

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Three functions of importance in business are cost functions, revenue functions and profit functions. Cost functions

More information

Microeconomics Instructor Miller Practice Problems Labor Market

Microeconomics Instructor Miller Practice Problems Labor Market Microeconomics Instructor Miller Practice Problems Labor Market 1. What is a factor market? A) It is a market where financial instruments are traded. B) It is a market where stocks and bonds are traded.

More information

1 Maximizing pro ts when marginal costs are increasing

1 Maximizing pro ts when marginal costs are increasing BEE12 Basic Mathematical Economics Week 1, Lecture Tuesda 12.1. Pro t maimization 1 Maimizing pro ts when marginal costs are increasing We consider in this section a rm in a perfectl competitive market

More information

Review of Production and Cost Concepts

Review of Production and Cost Concepts Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #3 Review of Production and Cost Concepts Thursday - September 23, 2004 OUTLINE OF TODAY S RECITATION 1.

More information

Econ 101: Principles of Microeconomics

Econ 101: Principles of Microeconomics Econ 101: Principles of Microeconomics Chapter 12 - Behind the Supply Curve - Inputs and Costs Fall 2010 Herriges (ISU) Ch. 12 Behind the Supply Curve Fall 2010 1 / 30 Outline 1 The Production Function

More information

ANSWERS TO END-OF-CHAPTER QUESTIONS

ANSWERS TO END-OF-CHAPTER QUESTIONS ANSWERS TO END-OF-CHAPTER QUESTIONS 23-1 Briefly indicate the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications

More information

3.3 Applications of Linear Functions

3.3 Applications of Linear Functions 3.3 Applications of Linear Functions A function f is a linear function if The graph of a linear function is a line with slope m and y-intercept b. The rate of change of a linear function is the slope m.

More information

D) Marginal revenue is the rate at which total revenue changes with respect to changes in output.

D) Marginal revenue is the rate at which total revenue changes with respect to changes in output. Ch. 9 1. Which of the following is not an assumption of a perfectly competitive market? A) Fragmented industry B) Differentiated product C) Perfect information D) Equal access to resources 2. Which of

More information

KEELE UNIVERSITY MID-TERM TEST, 2007 BA BUSINESS ECONOMICS BA FINANCE AND ECONOMICS BA MANAGEMENT SCIENCE ECO 20015 MANAGERIAL ECONOMICS II

KEELE UNIVERSITY MID-TERM TEST, 2007 BA BUSINESS ECONOMICS BA FINANCE AND ECONOMICS BA MANAGEMENT SCIENCE ECO 20015 MANAGERIAL ECONOMICS II KEELE UNIVERSITY MID-TERM TEST, 2007 Thursday 22nd NOVEMBER, 12.05-12.55 BA BUSINESS ECONOMICS BA FINANCE AND ECONOMICS BA MANAGEMENT SCIENCE ECO 20015 MANAGERIAL ECONOMICS II Candidates should attempt

More information

Economics 431 Fall 2003 1st midterm Answer Key

Economics 431 Fall 2003 1st midterm Answer Key Economics 431 Fall 003 1st midterm Answer Key 1) (7 points) Consider an industry that consists of a large number of identical firms. In the long run competitive equilibrium, a firm s marginal cost must

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Practice for Perfect Competition Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is a defining characteristic of a

More information

Summary. Chapter Five. Cost Volume Relations & Break Even Analysis

Summary. Chapter Five. Cost Volume Relations & Break Even Analysis Summary Chapter Five Cost Volume Relations & Break Even Analysis 1. Introduction : The main aim of an undertaking is to earn profit. The cost volume profit (CVP) analysis helps management in finding out

More information

Chapter 5 Revenue & Cost Analysis

Chapter 5 Revenue & Cost Analysis Chapter 5 Revenue & Cost Analysis 1. General Cost data are subject to great misunderstanding than are value data. The main reason: although the various categories of costs have precise meaning to the accountant,

More information

SOLUTIONS TO HOMEWORK SET #4

SOLUTIONS TO HOMEWORK SET #4 Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology SOLUTIONS TO HOMEWORK SET #4 1. a. If the markets are open to free trade, the monopolist cannot keep the markets separated.

More information

N. Gregory Mankiw Principles of Economics. Chapter 13. THE COSTS OF PRODUCTION

N. Gregory Mankiw Principles of Economics. Chapter 13. THE COSTS OF PRODUCTION N. Gregory Mankiw Principles of Economics Chapter 13. THE COSTS OF PRODUCTION Solutions to Problems and Applications 1. a. opportunity cost; b. average total cost; c. fixed cost; d. variable cost; e. total

More information

CHAPTER 9: PURE COMPETITION

CHAPTER 9: PURE COMPETITION CHAPTER 9: PURE COMPETITION Introduction In Chapters 9-11, we reach the heart of microeconomics, the concepts which comprise more than a quarter of the AP microeconomics exam. With a fuller understanding

More information

11 PERFECT COMPETITION. Chapter. Competition

11 PERFECT COMPETITION. Chapter. Competition Chapter 11 PERFECT COMPETITION Competition Topic: Perfect Competition 1) Perfect competition is an industry with A) a few firms producing identical goods B) a few firms producing goods that differ somewhat

More information

BEE2017 Intermediate Microeconomics 2

BEE2017 Intermediate Microeconomics 2 BEE2017 Intermediate Microeconomics 2 Dieter Balkenborg Sotiris Karkalakos Yiannis Vailakis Organisation Lectures Mon 14:00-15:00, STC/C Wed 12:00-13:00, STC/D Tutorials Mon 15:00-16:00, STC/106 (will

More information

NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Midterm II April 30, 2008

NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Midterm II April 30, 2008 NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Section I: Multiple Choice (4 points each) Identify the choice that best completes the statement or answers the question. 1.

More information

C 5 - COST BEHAVIOR: ANALYSIS AND USE notes-c5.doc Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM

C 5 - COST BEHAVIOR: ANALYSIS AND USE notes-c5.doc Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM C 5 - COST BEHAVIOR: ANALYSIS AND USE notes-c5.doc CHAPTER LEARNING OBJECTIVES: MAJOR: - Use the High-Low method to determine and calculate the structure of a cost. - Define, explain and use variable,

More information