Question

1.The Kees are small farmers in the wheat industry –they are price takers. Their cost function is: TC = 300,000 + 1,500Q + Q2 and MC = 1500 + 2Q. The market price is $3,000 per ton. Assuming the Kees are maximizing profits (or minimizing loses), how much profit are they making?

2.Good Grapes is selling organic grapes in a purely competitive market.  Its output is 5000 pounds, which it sells for $5 a pound.    At the 5000-pound level of output, the average variable cost is $4.00, the marginal cost is $4.25, and the average total cost is $4.50 a pound. Should the firm increase output, decrease output, or not produce? Why? How should the firm determine the optimal level of output?

3.Tomato Farms is selling tomatoes in a purely competitive market. Its output is 15,000 bushels, which sell for $15 a bushel. At this level of output, the marginal cost is $15 a bushel, average variable cost is $13.50 a  bushel, and average total cost is $14.50 a bushel. (a)What is the firm total fixed cost? (b)Should the firm increase output, decrease output, or not produce? Explain.

Answer 1

- TC и Apppop - Spo) 1 А 15 00 +а 9 Moss gue pio. 2, ooo , price lakex so. PEAR ТВ в 2 оорх 9. - 14R ODD . Арноль ля лодий ҮҮйде сам МК = М 2000 в 156b +29. 20 = 1500 o 2 150 шилд Росор, Е ТВ - TC 1 л T K = 300 0 8 15 0 = 3 025 000 0 TC = 200,000 + 1500 x 750 + (150) Зоо" ,боб + ,2. Бобо + 562,500 і - 1487 , 500 у све 262 500 output is 5000 pounds P = $5 pound at 5000 pounds AVC = $4 MC14:35 АТ-54'50

Since unit total the Mcl cost of is $4.75 which cost $4.50 producing less an than adolitions the aw is ИСКАТ С producing more units reduce the ATC so This can be verified as Ave is only $4 since it ATC - AFC & AVC fined cost does nid vary is profitable to produce with more output lenet B Jium should deteemine the optimal of out by equaling Me to MR a MR = MC 3. output (a): 15000 bushels & AR= P = $15 Me = $15 AVC = $13.50 ATC = 14.50 2) firms total fined cool ? ATC = TC TC ATCXO. AVE & A

TC = $14.500 15000 $ 217,500 5 FETVE AVC = TVC TVC AVC X 13.50 X 15 000 $ 202,500 Tc . TFC +TVC. TFC = TC - TVC - TFC = 216 217, 500 - 8202,500 $ 15000 b) The form should te decrease the output additional init - was Me the cost of producing and is more than the ATC B . Mc = $ 15 ATC = $14.50 MCZ ATC foim should reduce output.