NAME: ______DATE: ______

Chapter 7 Lesson 2 Homework

1.  Consider the following costs of owning and operating a car. A $15,000 Ford Taurus financed over 5 years at 10 percent interest means a monthly payment of $318.71. Insurance costs $100 a month regardless of how much you drive. The car gets 20 miles per gallon and uses unleaded regular that costs $2.50 per gallon. Finally suppose that wear and tear (mechanic repairs, oil changes, etc.) on the car costs about 15 cents per mile. Which costs are fixed and which are variable? What is the marginal cost of a mile driven? In deciding whether to drive from New York to Pittsburgh (about 1,000 miles round trip) to visit a friend, which costs would you consider? Why?

2.  You are given the following cost data. Assume that you cannot produce fractions of a unit

Q / TFC / TVC
0 / $12 / $0
1 / 12 / 5
2 / 12 / 9
3 / 12 / 14
4 / 12 / 20
5 / 12 / 28
6 / 12 / 38

If the price of output is $9, how many units of output will this firm produce? What is the total revenue at this point? What is the total cost at this point?

Should this firm continue to operate? Explain?

Can they operate in the long run? Explain.


4. Complete This Chart:

Q / TVC / MC / AVC / TFC / TC / AFC / ATC
0 / $0 / $1000
1 / 10
2 / 18
3 / 24
4 / 32
5 / 42
6 / 54
7 / 70
8 / 88

Graph Here:

TC

TVC

TFC

[GO UP BY 20s AND

OUT BY 1s]

Graph Here:

MC

ATC

AVC

AFC

[GO UP BY 10s AND OUT

BY 1s]


5. Complete This Chart:

TP (q) / TFC / TVC / MC / P = MR / TR / TC / Profit
0 / $8 / $0 / $15
1 / 8
2 / 12
3 / 16
4 / 21
5 / 30
6 / 42
7 / 60
8 / 82
9 / 108
10 / 144
  1. How much product would this firm choose to make? Explain.
  1. Producing more and more of a product in the short run will increase profits. Do you agree or disagree with this statement? Explain.