Assignment
Please make sure all graphs are clearly labeled. If asked to explain please give 2 to 4 sentence answers. Due at the start of class Oct 25h; no late homework is accepted.
Sam currently provides music lessons for $60 each, and currently teaches 12 lessons a week. If they lower their price to $55 a lesson, they'll be able to increase to 15 lessons a week. Find the marginal revenue.
Sam faces a constant marginal cost of $30 per lesson, should they lower their price as indicated in 1.a.? Why?
2. A textile producer is operating in a perfectly competitive industry. Using the following graph would the firm be earning a positive, negative, or no profit. Also, indicate if the firm would shut down production at the given price. (Answer for P1*, P2*, P3*, P4*)
Isabel owns and operates a shop that performs smog checks. Here we'll assume the market for smog checks is perfectly competitive. The current equilibrium price is $60 per smog check. Isabel's marginal cost is $60 when she's providing 400 smog checks a month. What is Isabel's profit maximizing output (number of smog checks per month)?
At 400 smog checks per month, Isabel's average total cost is $57.50. Given Isabel is running a profit maximizing firm, what's her profit for the month?
If every firm, and potential firm, in the smog check industry faces the same costs as Isabel what will happen to the number of firms providing smog checks in the long run? (Will firms enter, exit, or stay the same?) Why?
Graph the ATC and MC curves for Isabel's shop, and indicate her profit (from 3.b.). Make sure the graph is well labeled. The only actual values you need to use are those given or calculated in 3.a. and 3.b..