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Economics 247 Assignment 2 Version B
This assignment has a maximum total of 100 marks and is worth 10% of your total grade for this course. You should complete it after completing your course work for Units 6 through 10. Answer each question clearly and concisely.
1. Suppose that a firm has fixed costs of $25 per day for renting one machine and its variable costs are as shown in the table below.
|Labour |Output |VC |TC |AFC |AVC |ATC |MC |
|0 |0 |$ 0 |$ 0 |---- |---- |---- |---- |
|1 |4 |25 |50 |$ 6.25 |$ 6.25 |$ 12.50 |$ 12.50 |
|2 |10 |50 |75 |2.50 |5.00 |7.50 |4.17 |
|3 |13 |75 |100 |1.92 |5.77 |7.69 |8.33 |
|4 |15 |100 |125 |1.67 |6.67 |8.33 |12.50 |
|5 |16 |125 |150 |1.56 |7.81 |9.38 |25.00 |
a. Calculate the TC, AFC, AVC, ATC, and MC, and complete the table with your calculations. (5 marks)
The calculations have been copied into the table above. The ATC may not perfectly equal (AFC + AVC), due to rounding.
b. Compared to other markets, why do economists consider perfect competition to be the most efficient market structure? (4 marks)
In a perfect competition there are many buyers and sellers trading identical products so that each buyer and seller is a price taker. An individual producer has no impact on the market price and can sell as much or as little as it wants at this price. In a competitive market, firms can freely enter and exit the market with no cost. In...