Florence is considering going into business for herself and has developed the following estimates of monthly costs and revenues to aid her in her decision-making process. She has decided to house the business in a building that she already owns, although she could rent the building to someone else for $1,000 per month. Estimated payments for utilities (electricity, natural gas, water, and telephone) are $475 per month. She will hire one employee at a total cost of $1,100 per month. Inventory is estimated to cost $2,800 per month. Finally, Florence earns $3,000 a month in her current job.
a. How much monthly revenue would Florence have to take in to earn 0 economic profit?
b. Assume that Florence has estimated her monthly revenue to be $9,000. In this case, Florence would earn an accounting profit (loss) of ________, and an economic profit (loss) of ________.
c. Assume instead that Florence does not own a building, and that she will have to rent a building for $1,000 per month (all other estimates remain the same). In this case (assuming estimated monthly revenue is still $9,000), Florence would earn an accounting profit (loss) of ________, and an economic profit (loss) of ________.
98) In the general textbook treatment, the firm's short run average variable and average total cost curves are U-shaped, while the average fixed cost curve is downward sloping over the entire range of output. Explain why.
99) Complete the table below, which represents the production costs for a typical firm. (Round numbers to the nearest tenth.)
1___ 27.5___$__$__$__ $27.5
2___ 46.8______23.4___ ___
3___ 63.3____________ ___
At what level of output do diminishing returns set in? How do you know?
100) Use the following table to answer questions a-c.
Output (Q):01234 5 6
Total Cost (TC): $36$45$52 $61 $74 $91 $110
a. What is the average fixed cost of producing 4 units of output?
b. What is the marginal cost of producing the third unit of output?
c. At what level of output does the firm encounter diminishing marginal returns? How do you know?
101) Explain how the value of marginal cost affects the values of average variable cost and average total cost and what this means for the relationship between the marginal cost curve and the average variable and total cost curves.
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