Econ 247
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
25
----
----
----
----
1
4
25
50
6.25
6.25
12.50
25
2
10
50
75
2.50
5.00
7.50
25
3
13
75
100
1.92
5.77
7.69
25
4
15
100
125
1.67
6.67
8.33
25
5
16
125
150
1.56
7.81
9.38
25
a. Calculate the TC, AFC, AVC, ATC, and MC, and complete the table with your calculations. (5 marks)
b. Compared to other markets, why do economists consider perfect competition to be the most efficient market structure? (4 marks)
In a perfect competition market price always equals the marginal cost of production and each firm will produce in its average total cost or per-unit cost. This way firms can provide consumer with goods and services at the lowest price.
In contrast with other markets structures such as oligopoly and monopolistic competition (both capable of keeping prices above marginal cost), in a perfect competition market firms do not have market power over other firms.
c. What is the difference between the concepts of diseconomies of scale, and the law of diminishing return? (4 marks)
Diseconomies of scale take place along the long-run average cost rises as the quantity of output increases.
The law of diminishing returns implies that adding more of one factor of production at some point will decrease returns per unit.
The difference between these two concepts is the number of input does not change in diseconomies per unit of output and in the law of diminishing returns decreases when one input is more utilized than others.
2. a. Sally owns a ceiling fan company. Last year, she sold 1000 ceiling fans at $50 each, and each fan cost her $20. Before going into the ceiling
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
25
----
----
----
----
1
4
25
50
6.25
6.25
12.50
25
2
10
50
75
2.50
5.00
7.50
25
3
13
75
100
1.92
5.77
7.69
25
4
15
100
125
1.67
6.67
8.33
25
5
16
125
150
1.56
7.81
9.38
25
a. Calculate the TC, AFC, AVC, ATC, and MC, and complete the table with your calculations. (5 marks)
b. Compared to other markets, why do economists consider perfect competition to be the most efficient market structure? (4 marks)
In a perfect competition market price always equals the marginal cost of production and each firm will produce in its average total cost or per-unit cost. This way firms can provide consumer with goods and services at the lowest price.
In contrast with other markets structures such as oligopoly and monopolistic competition (both capable of keeping prices above marginal cost), in a perfect competition market firms do not have market power over other firms.
c. What is the difference between the concepts of diseconomies of scale, and the law of diminishing return? (4 marks)
Diseconomies of scale take place along the long-run average cost rises as the quantity of output increases.
The law of diminishing returns implies that adding more of one factor of production at some point will decrease returns per unit.
The difference between these two concepts is the number of input does not change in diseconomies per unit of output and in the law of diminishing returns decreases when one input is more utilized than others.
2. a. Sally owns a ceiling fan company. Last year, she sold 1000 ceiling fans at $50 each, and each fan cost her $20. Before going into the ceiling