Apple

1) Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for $100 per thousand. Conigan's total and marginal cost curves are:

TC = 3,000,000 + 0.001Q2

MC = 0.002Q

where Q is measured in thousand box bundles per year.

a. Calculate Conigan's profit maximizing quantity. Is the firm earning a profit?

b. Analyze Conigan's position in terms of the shutdown condition. Should Conigan operate or shut down in the shortrun?

Answer:

a.

Given the competitive nature of the industry, Conigan should equate P to MC.

100 = 0.002Q

Q = 50,000

To determine profit:

π = TR - TC

TR = PQ

TR = $100 ∙ 50,000

TR = 5,000,000

TC = 3,000,000 + 0.001(50,000)2

TC = 3,000,000 + 2,500,000

TC = 5,500,000

π = 5,000,000 - 5,500,000

π = -500

Conigan is losing $500,000 per year.

b.

To determine if the firm should operate or shutdown, we must compare P to AVC.

AVC =

TVC = TC - TFC

TVC = 5,500,000 - 3,000,000

TVC = 2,500,000

AVC = = $50

AVC = 50; P = $100

The firm should operate since P > AVC.

8) A competitive firm sells its product at a price of $0.10 per unit. Its total and marginal cost functions are:

TC = 5 - 0.5Q + 0.001Q2

MC = -0.5 + 0.002Q,

where TC is total cost ($) and Q is output rate (units per time period).

a. Determine the output rate that maximizes profit or minimizes losses in the shortterm.

b. If input prices increase and cause the cost functions to become

TC = 5 - 0.10Q + 0.002Q2

MC = -0.10 + 0.004Q,

what will the new equilibrium output rate be? Explain what happened to the profit maximizing output rate when input prices were increased.

Answer:

a.

TR = PQ = 0.10Q MR = 0.10

TC = 5 - 0.5Q + 0.001Q2

MC =...