Problem 1 — Silph Company (Ch 13)
Silph Co. produces scopes using labor and raw materials. Wage = $10/worker, raw materials = $20/scope. Complete the cost table below, then answer the follow-up questions.
1a. Silph Company Cost Table
ATC at 2 scopes = 80. Fill in every blank cell, then check.
Workers
Scopes (Q)
FC
VC
TC
AFC
AVC
ATC
MC
MPL
0
0
0
—
—
—
—
—
1
1
2
2
80
3
3
5
4
8
5
13
6
21
7
34
8
Problem 1b — Short Answer
1b. Does Silph Co. experience diminishing returns to labor? Use the MPL column.
Problem 1c — Short Answer
1c. The market price for one scope is $60. How many scopes should Silph produce? How many workers does it hire? Does the company make a profit?
Problem 1d — Short Answer
1d. In the long run, what is the minimum price for one scope such that the company could stay open?
Problem 2 — Taco Stands on State Street (Ch 14)
Taco stands on State Street operate in a perfectly competitive market with identical stands. Market demand: P = 100 − 2Q Each stand’s MC: 4q Each stand’s TC: 2q² + 8
Problem 2a — Short Answer
2a. What is the fixed cost (FC)? Given ATC = 2q + 8/q, what is ATC when q = 2?
Problem 2b — Short Answer
2b. What is the break-even price for each taco stand?
Problem 2c — Short Answer
2c. What is the shutdown price?
Problem 2d — Short Answer
2d. Current price is $10. How many tacos does each stand produce? Will we see entry or exit?
Problem 2e — Multiple Choice (bonus — not in the worksheet)
2e. Price drops from $10 to $7. What do you do in the short run and long run?
Problem 2f — Short Answer
2f. In the long run, what would the price be? How many taco stands stay in the market?