Break-even Price and Shut-down PriceGeneral Instructions for all Assignments
1. Unless specified differently by your course instructor, save this assignment template to your computer with the following file naming format: Course number_sectionnumber_Last_First_unit number
2. At the top of the template, insert the appropriate information: Your Name, Course Number and Section, and the Date
3. Insert your answers below, or in the appropriate space provided for in the question. Your answers should follow APA format with citations to your sources and, at the bottom of your last page, a list of references. Your answers should also be in Standard English with correct spelling, punctuation, grammar, and style (double spaced, in Times New Roman, 12-point, and black font). Respond to questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions.
4. Upload the completed Assignment to the appropriate Dropbox.
5. Any questions about the Assignment, or format questions, should be directed to your course instructor.
In this Assignment, you will be assessed on the following outcomes:
AB224-3: Examine how changes in the cost of production affect pricing and production quantity decisions of a firm in a perfectly competitive market.
GEL-8.5: Apply critical thinking to the field of study.
Assignment
In this Assignment, you will define and calculate the remaining six major cost elements of a business, when given the Total Costs and the Quantity Produced, as well as to use the computed costs to determine a minimum cost output level for that business. In addition, you will compute both the break-even price and the shut-down price for a hypothetical business in a perfectly competitive market, anddetermine if that business would incur an economic profit at various market prices, and should the firm continue to produce at each of those price levels.
Questions
Table 2.a. shows an LED light bulb manufacturer's total cost of producing LED light bulbs.
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Table 2.a.
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Cases of LED light bulbs produced in an hour
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Total Cost
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0
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$4,500
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10
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$4,900
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20
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$5,100
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30
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$5,300
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40
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$5,400
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50
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$5,700
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60
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$6,700
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70
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$7,900
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80
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$9,700
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90
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$11,800
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1. What is this manufacturer's fixed cost? Explain why.
2. Assuming that you only know the Total Costs (TC) (as is shown in the Table 2.a. above) explain howyou would calculate each of the following:
a. Variable Cost (VC);
b. Average Variable Cost (AVC);
c. Average Total Cost (ATC);
d. Average Fixed Cost (AFC); and,
e. Marginal Costs (of a single case).
3. In Table 3.a., for each level of output, insert into the table the values for:
a. the Variable Cost (VC);
b. the Average Variable Cost (AVC);
c. the Average Total Cost (ATC); and,
d. the Average Fixed Cost (AFC).
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Table 3.a.
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Cases of LED light bulbs produced in an hour
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Total Cost
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Variable Costs
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Average Variable Costs
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Average Total Costs
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Average Fixed Cost
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a.
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b.
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c.
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d.
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0
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$4,500
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n/a
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n/a
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n/a
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10
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$4,900
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|
|
|
|
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20
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$5,100
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|
|
|
|
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30
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$5,300
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|
|
|
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40
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$5,400
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|
|
|
|
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50
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$5,700
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|
|
|
|
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60
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$6,700
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|
|
|
|
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70
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$7,900
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|
|
|
|
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80
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$9,700
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|
|
|
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90
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$11,800
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|
|
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e. Given the information you computed in Table 3.a., what is the minimum cost output Level? Explain why.
4. Brenda Smith operates her own farm, raising chickens and producing eggs. She sells her eggs at the local farmers' market, where there are several other egg producers' also selling eggs by the dozen. (Brenda operates in a perfectly competitive market in which she is a "price taker.") In order to make sure she does not lose money on selling eggs, she does an analysis of her costs for producing eggs as shown on Table 4.a.
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Table 4.a.
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Dozens of eggs
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Fixed Cost
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Total Cost
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Variable Costs
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Average Variable Costs per dozen
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Average Total Costs per dozen
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0
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$3.35
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$3.35
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n/a
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n/a
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n/a
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10
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$3.35
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$10.50
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$7.15
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$0.72
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$1.05
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20
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$3.35
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$16.40
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$13.05
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$0.65
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$0.82
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30
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$3.35
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$23.10
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$19.75
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$0.66
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$0.77
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40
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$3.35
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$30.00
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$26.65
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$0.67
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$0.75
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50
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$3.35
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$36.50
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$33.15
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$0.66
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$0.73
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60
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$3.35
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$48.00
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$44.65
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$0.74
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$0.80
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70
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$3.35
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$64.40
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$61.05
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$0.87
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$0.92
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80
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$3.35
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$80.00
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$76.65
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$0.96
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$1.00
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90
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$3.35
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$135.00
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$131.65
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$1.46
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$1.50
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a. What is Brenda's break-even price for a dozen of eggs? Explain how you found that answer.
b. What is Brenda's shut-down price for a dozen of eggs? Explain how you found that answer.
c. If the market price of a dozen eggs at the local farmers' market is $1.45 per dozen, will Brenda make an economic profit? Explainhow you determined your answer.
d. If the market price of a dozen eggs at the local farmers' market is $1.45 per dozen, should Brenda continue producing eggs in the short run? Explain how you determined your answer.
e. If the market price of a dozen eggs at the local farmers' market is 72 cents per dozen, will Brenda make an economic profit? Explain how you determined your answer.
f. If the market price of a dozen eggs at the local farmers' market is 72 cents per dozen, should Brenda continue producing eggs in the short run? Explain how you determined your answer.
g. If the market price of a dozen eggs at the local farmers' market is 64 cents per dozen, will Brenda make an economic profit? Explain how you determined your answer.
h. If the market price of a dozen eggs at the local farmers' market is 64 cents per dozen, should Brenda continue producing eggs in the short run? Explain how you determined your answer.
Assignment: Monopoly Pricing
General Instructions for all Assignments
1. Unless specified differently by your course instructor, save this assignment template to your computer with the following file naming format: Course number_section number_Last_First_unit number
2. At the top of the template, insert the appropriate information: Your Name, Course Number and Section, and the Date
3. Insert your answers below, or in the appropriate space provided for in the question. Your answers should follow APA format with citations to your sources and, at the bottom of your last page, a list of references. Your answers should also be in Standard English with correct spelling, punctuation, grammar, and style (double spaced, in Times New Roman, 12-point, and black font). Respond to questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions.
4. Upload the completed Assignment to the appropriate Dropbox.
5. Any questions about the Assignment, or format questions, should be directed to your course instructor.
Assignment
In this Assignment, you will demonstrateyour understanding of monopoly pricing, based on different management criteria, the impact of price regulation of monopolies, and provide detailed explanations of how price effect and quantity effect cause marginal revenue to be different from the price.
Questions
1. The Gulf Sea Turtle Conservation Group (GSTCG), a 501(c) (3) non-profit group of volunteers working to collect data on nesting sea turtles and to promote sea turtle conservation,is considering creating a video to educate people about sea turtle conservation. The cost of duplicating the video on a DVD and mailing the DVD is $6.58. In a GSTCG member meeting, the video plan was discussed. Table 1. shows the expected demand for the DVD at different suggested donation levels, and they can act as a single-price monopolist if they choose to.The receipts will be used to fund GSTCG supplies for their data collection and conservation work. At the end of each sea turtle nesting season, any excess funds are donated by the GSTCG to a local non-profit sea turtle research and rehabilitation facility. a. Complete Table 2. by computing the Total Revenue, Marginal Revenue, and Profit columns.
b. The President wants the GSTCG to provide videos to generate the most possible donations (Total Revenue). What price is the President of the GSTCG favoring and how many people will receive the DVD if this becomes the price of the suggested donation? Explain your answers.
c. The Education Outreach Committee wants the GSTCG to provide videos to the most possible number of people. What price is the Educational Outreach Committee favoring and
how many people will receive the DVD if this becomes the price of the suggested donation? Explain your answers.
d. The Treasurer of the GSTCG wants the DVD program to be as efficient as possible so that the marginal revenue equals marginal cost. What price is the Treasurer favoring and how many people will receive the DVD if this becomes the price of the suggested donation? Explain your answers.
e. The Fund Raising Committee wants the DVD program to generate as much profit in donations as possible. What price is the Fund Raising Committee favoring and how many people will receive the DVD if this becomes the price of the suggested donation? Explain your answers.
2. A business has been created to provide needed services to its market. As the only provider of this service, it functions as a monopoly, with the ability to set prices and having the entire market demand schedule as its demand curve. Because the monopoly is newly formed, there is no government intervention into the monopoly's pricing actions. Examine Diagram 2. and answer each of the following questions with complete explanations:
a. What is quantity (a)and why is it important?
b. What is the value at point (b) and why is it important?
c. What is the value at point (c) and why is it important?
d. What is the value at point (d) and why is it important?
e. What is the meaning of the green rectangle labeled(e)?
f. If there were no monopoly and this was a perfectly competitive market, what would quantity at point (f) be and why is it important?
g. If there were no monopoly and this was a perfectly competitive market, what would point (g) be and why is it important?
h. For the market in which the monopoly now operates, what does the red triangle labeled (h) mean, and why is it important?
3. A governmental regulating agency was created to oversee the monopoly in Question 2's operations and pricing. Diagram 3. depicts a new price ceiling set by the regulators. Answer each of the following questions with complete explanations:
a. What is quantity (a) and why is it important?
b. What is the value at point (b) and why is it important?
c. At what level was the price ceiling set?
d. What is the value at point (c) and why is it important?
e. At this price ceiling level, will the monopoly make any monopoly profits?
f. At this price ceiling level, will the monopoly cover its costs?
g. At this price ceiling level, will the monopoly continue in business in the long run?
4. Diagram 4.depicts a different price ceiling set by the regulators for the monopoly in Question 2. Answer each of the following questions with complete explanations:
a.What is quantity (a) and why is it important?
b.What is the value at point (b)and why is it important?
c. At what level was the price ceiling set?
d. At this price ceiling level, will the monopoly make any monopoly profits?
e.At this price ceiling level, will the monopoly cover its costs?
f.At this price ceiling level, will the monopoly continue in business in the long run?
5. Explain your understanding of how price effect contributes to the fact that, for a monopoly, marginal revenue is always less than the price.
6. Explain your understanding of how quantity effect contributes to the fact that, for a monopoly, marginal revenue is always less than the price.