Use the concepts of fixed and variable costs to explain why 30% of dry cleaners would close but the other 70%, also operating at a loss are able to remain open.( 10 points )
⦁ When a firm is “temporarily closed” (the firm shuts down) does the firm eliminate all of its costs of production? Briefly explain your answer.
Question 3.
See the graph above, Label and Describe in terms of :
a. Name of Market Structure (3 points)
⦁ Ability to control prices. (3 points)
⦁ Spending on advertising and marketing (3 points)
⦁ Pure profit, Normal profit or losses. (3 points
4. a. Use the kinked demand curve to explain why oligopolists practice price leadership. (5 points)
b. Give an example of an oligopoly (3 points)
Question 5.
5
a. Name of Market Structure (3 points)
b. Ability to control prices. (3 points)
c. Spending on advertising and marketing (3 points)
d. Pure profit, Normal profit or losses. (3 points
6.
a. The above firm will minimize losses by producing between Q_________ units (4 points)
b. Q_____units.
(4 points)
7. Each worker gets equal pay. Fill in Average Product and Marginal Product (7 points).
At what input level will Marginal Costs begin to rise?
input of labor Total Product Average Product Marginal Product
0 0
_____
1 8 _____
_____
2 17 _____
_____
3 27 _____
_____
4 32 _____
_____
5 35 _____
_____
6 34 _____
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⦁ Jon quit his job as a manager at West End Savings bank where he earned $112,000 a year. He cashed in $200,000 in corporate bonds that earned 1.5% interest annually to set up a gym. Jon has decided to buy a store front and set up exercise classes. There are 1400 people who will pay $1000 a year for unlimited classes; $850 from each person goes for instructors, maintenance, equipment, insurance, depreciation etc.
Write your answers to the following questions on the answer sheet. You must show your work.
⦁ What are Jon’s total revenues? (3 pts)
⦁ What are Jon’s explicit costs? In numbers (3 pts)
⦁ What is his accounting profit? Numbers (3 pts)
⦁ List 2 2 implicit costs that Jon has not included.
⦁ What is Jon’s pure economic profit (or loss) in numbers?
