Question

Table (a) shows the cost data for Farmer Mill, a barley farmer. Round your answers to 2 decimal places. a) Complete table (a). Total Cost ($) Variable Cost ($) Recage Total Cost ($) Marginal Cost ($) Quartity Recage Variable Cost ($) 1 14 18 10 16 46 60 b) What are the values of the break-even and shutdown prices? Round your answer to 2 decimal places. Break-even price: $ 8 Shutdown price: $ c) Given the prices shown in column 1 of the following table, complete columns 2, 3, 4, and 5. (Assume that partial units cannot be produced.) Total Reverse($) Price ($) Total Quantity Supplied 1 Total Cost($) Output Profit(+)/ Loss(-) ($) Total Quantity Supplied 2 Total Quantity Demanded 672 576 d) Suppose that there are a total of 120 farms in the barley market, Including and identical to Farmer Mills: Show the total supply in column 6 of table(b). e) If the market demand for barley is as shown in column 7, what will be the equilibrium price and quantity traded? Price: $D Quantity traded: O f) At the equilibrium price, what quantity will Farmer Mill produce, and what will be her profit? What will be the Industry profit? Quantity: Firm profit: $C Industry profit: $ g) As a result of your answer In (f). will firms enter or leave this industry? (Click to select) h) Suppose that, In the long run, the number of firms Increases by 60 percent. Show the new totals In column 8 of table (b). As a result, what will be the new equilibrium price? What quantity will Farmer Mill produce, and what will be her profit loss? What will be the Industry profit/loss? Equilibrium price: $D Firm profit/loss: $D : Quantity: D : Industry profit/loss: $

Answer 1

a)

Quantity	Total Cost ($)	Total Variable Cost ($)	Marginal Cost ($)	Average Total Cost($)	Average Variable Cost($)
0	8	0	-	-	-
1	14	6	6	14.00	6.00
2	18	10	4	9.00	5.00
3	24	16	6	8.00	5.33
4	32	24	8	8.00	6.00
5	42	34	10	8.40	6.80
6	54	46	12	9.00	7.67
7	68	60	14	9.71	8.57

b)

Break-even point is when Profit = 0

=> Total Revenue - Total Cost = 0

=> Price * Quantity - ATC * Quantity = 0

=> (Price - ATC) * Quantity = 0

=> Price = ATC at the profit-maximizing quantity

We know that the profit-maximizing condition is Price = Marginal Cost

Therefore, Breakeven price = Marginal Cost = ATC = $8 (obtained from the table)

If the firm is unable to recover its variable costs from the revenue, then the firm shuts down

Shut-down price = Minimum of AVC = $5 (obtained from the table)

c)

Price ($)	Output	Total Revenue ($)	Total Cost ($)	Profit/Loss
4	2	8	18	-10
7	3	21	24	-3
9	4	36	32	4
11	5	55	42	13
12	6	72	54	18

The output(profit-maximizing) in the above table is obtained as the highest quantity up to which the marginal cost remains less than or equal to the price.

d)

Price ($)	Output	Total Revenue ($)	Total Cost ($)	Profit/Loss	Total Quantity Supplied 1
4	2	8	18	-10	240
7	3	21	24	-3	360
9	4	36	32	4	480
11	5	55	42	13	600
12	6	72	54	18	720

Total Quantity supplied 1 = Number of firms * Output from each firm = 120 * Output