Problem 1. Explain how opportunity cost is related to the producer’s supply curve.
Problem 2. Explain why the minimum price necessary rises as the producer produces more output.
Problem 3. Define profit.
Problem 4. What are the assumptions of a perfectly competitive market.
Problem 5. Describe the demand curve faced by the individual firm. Draw the individual firm’s demand curve.
Problem 6. Describe the short-run and the long-run.
Problem 7. Define diminishing marginal returns. Define marginal product. Explain why diminishing returns occur.
Problem 8. Define fixed costs, variable costs, marginal cost, and total costs.
Problem 9. Explain how the firm decides whether or not to shutdown.
Problem 10. Define average total cost and average variable cost. Calculate ATC, AVC, and MC from the following:
Workers Output Fixed cost Variable cost
per day per day ($/day) ($/day)
0 0 40 0
1 80 40 6
2 200 40 12
3 260 40 18
4 300 40 24
5 330 40 30
6 350 40 36
7 362 40 42
Problem 11. If the price per unit of output is 62 cents per unit what will be the profit-maximizing output level?
Problem 12. If the wage is $12 per day, instead of $6, and the price is 35 cents per unit, what will be the profit-maximizing output?
Problem 13. Draw a graph of MC, ATC, AVC, and price. Find the profit-maximizing output level graphically. Find the area representing profit on the graph.
Problem 14. Define producer surplus. Show the area representing producer surplus on a graph.