Friday, March 31, 2006

It's Friday!

Okay - a few more links, and some brain teasers for you.

Here is the PC side by side graphs we used today in class: http://www.reffonomics.com/perfectcompetition2.html

PC and an increase in D:
http://www.reffonomics.com/perfectcompetitionincreaseindemand.html

Entry and Exit in PC:
http://www.reffonomics.com/entryexit.html

Shut Down rule:
http://www.reffonomics.com/shutdownrule.html
http://www.reffonomics.com/shutdown3.html

Here's part of an online textbook on PC:
http://www.howardcc.edu/social_science/micropdf/unit-6.jb.pdf

And here is another online text that could help - there are chapter notes, possible overheads, and an online quiz:
http://william-king.www.drexel.edu/top/prin/txt/Comp/Ch8ToC.html


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And some questions to think about:

1. The licorice industry is competitive. Each firm produces 2 million strings of licorice in a year. The strings have an average total cost of $.20 each, and they sell for $.30. (a) What is the marginal cost of a string? (b) Is this industry in long run equilibrium? Why or why not?

2. Bob's lawn mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Bob's short run decision regarding shut down and his long run decision regarding exit from the market?

3. Your best friend's long hours in the chemistry lab have finally paid off - she discovered a secret formula that allows people to do an hour's worth of studying in 5 minutes. So far, she's sold 200 doses, and faces the following ATC schedule: (Q--ATC) 199 -- $199, 200 -- $200, 201 -- $201. If a new customer offers to pay your friend $300 for one dose should she make one more? Explain.

Have a nifty weekend! :)

31 comments:

gorman said...

2. Bob's short run decision to remain open, since he is covering his fixed cost and only losing $10 dollars a day. Hopefully, he will be able to find another lawn to cut so that he can make a profit. If he doesn't find another lawn, he will keep losing 10$ everyday and in the long run he will probably have to shut down. When he shuts down will depend on how much of a loss he can take before going broke.

gorman said...

3. You can tell your friend to keep her money...ATC=TC/Q
so 200X200=$40,000
201X201=$40,401
=$401 is the marginal cost
your friend is offering $300 dollars but it is costing you $401.

theczyzewicz said...

1. a. would the marginal cost be 20 cents because each one is costing 20 cents to make? or am i off here. that's the best i can come up with.
b. i'm really unsure of myself when i answer this...but the book says that if there is a fixed number of firms then it is short run and if firms are coming and leaving then it has a long run equilibrium...am i getting hot?

theczyzewicz said...

sounds like gorman knows what he's talking about for number three, since the benefits don't exceed the marginal cost it's not worth selling it to him. To be perfectly honest i had no idea how to approach this problem and then saw how he did it and now it makes total sense.

theczyzewicz said...

*correction* it's not worth selling it to HER. my bad.

cranjos said...

i thought of this question after reading t-gorm's #3...in number three, friend A is offering $300 while its costing person B $401...of all of the exchanges that take place in the world between producers and consumers, what exchange has the greatest profit? for example...item A costs the producer $20 to make but it charges $70...therefore item A has a profit of $50 for every one sold...what items in the world have the greatest profit...?

emkatbuto said...

I do not think I am quite getting this stuff, maybe I will try the activities and look at this later tonight.

helen said...

re what product would have the largest profit: in terms of total profit I think something like diamonds, where there is such strict control over the supply; in terms of the percentage of profit compared to costs, I'd guess somthing like one of those really cheap carnival prizes

forsnic said...

in response to josh's comment, i think the greatest profit would come from things are easy and cheap to produce in large quantities. yet the consumer thinks that they are high quality and genuine so they pay more. fake metals, jewels, leater, stuff like that.

forsnic said...

i sure wish i had that secret formula right about now... ok so i was a bit confused by question 3 at first. but i finally figured it out and realized that her marginal cost would be less if she sold less. which makes sense because the more she produces the higher her ATC is each time. she would have to have sold 149 and under doses in order for her friend's $300 to be greater than her MC.

Joe Madden said...

Crandall, i was recently in Mexico. Everything there has extremely high profits...Because everything is crap. Anyways....problem 3).....Your friend would be giving you the shaft, because you would wind up losing 101 bucks in the end. it would only be acceptable if your friend was extremely behind in Econ (like Me).

Joe Madden said...

1 - Michelle is not the only one confused about the marginal cost with the liccorice...I thought you need to know some more information to answer this question. Part B - I believe that the market is long run elastic, because it is a perfect competition...this means that firms can enter and leave the market...plus...i could be wrong here...as time goes on, things become more elastic?...i think that's right, and i know we just learned that recently.

amepham said...

ummm ok thought i was understanding in class but i guess not.
i don't really get any of those questions at all.

jacnbox said...

hey, i think that we should do one of the following things:

a) fly out mr. reffonomics
b) hold a video confrence with him
c) talk to him on the phone

that would be pretty nifty. i think it would help to have someone elses words explain the really confusing stuff too. two ways of explaining, because some of the class is confuddled.

jacnbox said...

a) if Price = marginal revenue, then marginal revenue equals 600,000. now i know that has nothing to do with mc, but im thinking as i type. MR PARD...nope not helping. mc is equal to....oh duh. mc is the cost of producing one more. so then mc=.20

b)not sure. i think you have to graph this one out. i dont wanna. ill do it later.

emkatbuto said...

Okay definetly do not know where my weekened went. I think I really need to go over the activities in class tomarrow and maybe go over some of the types of problems you posted for this weekend, that would help...

Annie said...

This whole subject really confuses me, but i think that the marginal costis .20 because if ATC is .20 then MC should be change in TC which is .20 over change in quantity which is one.

Annie said...

I think that in the long run this licorice company is in equilibrium, because it increases in the same increments or quantity demanded is quantity supplied?

bjjames said...

3. I think that she shouldn't make anymore because the cost ends up outweighing the her revenue. Because ATC = TC/Q...and the rest of the math adds up.

bjjames said...

2. the guy's cost outweighs what he makes each day by 10 dollars... so of course he should get out

NicolleM said...

1. I think the MC would be .20. And since they sell it for over a price that's more than the costs, they cover all expenses, so they are in long run equilibrium. I'm not sure if that's right.
2. In the short run, this guy should stay open because he can cover the variable costs. Yet, he is still losing 10 dollars a day, so in the long he should shut down.
3. i certainly do not understand this question, because what I thought was the answer is no where near what everyone else has...so nevermind

cherie said...

Hey, my computer wouldn't log on the the internet this weekend and this is the first time I've been able to use the internet. My dad has dial up and it hasn't been working for awhile so every other week I have a hard time leaving comments. Just wanted to let you know.

cherie said...

I was going to leave a comment last night about having troubles with the workbook but we went over it in class. I think I understand it know.

Bethany said...

1. a) In order to find MC, we must know what the change in TC. All the problem gives us is that TC equals $40,000 for the quantity of 2 mil. Is ATC a straight line? If so, then MC would equal $.20.
b) The licorice industry is not in long term equilibrium in this situation because the firms are making a profit. More firms would join the industry if they knew each firm was earning $200,000 in profit each year.

Reid said...

I have a question for all of the econ students of the world. WHY DO WE STUDY ECON? Don't get me wrong, the class is fun, but seriously why study it. We are in such a national debt that we won't get out of unless we make huge changes in how our nation works, we won't get out of. Why are we studying ways to make more money, or how to spend money, when the money we have isn't even ours to begin with. We are playing with someone else's money. This really bugs me because the only that that we are doing right now in econ is trying to keep us from going deeper into debt, so perhaps someday we can get out of debt. Because our money isn't worth anything anyways, why can't we just file bankrupcy. There is no way we can fix our debt any other way because people are greedy and don't like to give up there money to help fix this problem. We need to realize that unless this is fixed, like the referendum, things will be cut. Why study econ? It's almost a hopeless cause.

KM said...

Reid, you're so much fun. :)

Life is more than the national debt. If it wasn't, politicians would be a lot more worried about it.

Money has value because the government says it does and because we believe them.

Why do we study Econ? You mean it's not so I can make you die of frustration?

:)
KM

helen said...

why do we study econ? because some guys were bored and invented a new subject to study; because it's there to be studied; because, for whatever reason, people are actually interested in studying econ; people are interested in basket weaving, why not econ?

The Amazing O-clam said...

Helen is totally right, Basket weaving is lame, why do people like it? Same reason people like econ.

I happen to love math, I think it is cool, not even joking, I also really like econ. The point of everything is logical, I think things that work every time is pretty incredible, thus, making me enjoy it much much more

The Amazing O-clam said...

If there was no debt, would the economy fail? We need debt to operate don't we?

Also, I don't know if I have said this before, but legalizing heroin and cocaine could help the economy. We could tax the daylights out of it and get some fun monies, plus the dolts who do the drugs would kill themselves off, leaving us with a super-smart society... kinda

emkatbuto said...

I was wondering if you could give us more questions like these to try again, since now you explained how to do them...and maybe some stumpers on monopoly...? Thanks

Reid said...

hahaha, I love how this is our conversation post, awesome. Anywho, I guess since the government says it is so, we should believe it, ya know, just like tv and the internet, and all that jazz. Lol. I see where y'all comin' from, but it would be nice to not owe so many people.