Economic theory to create value for the firm

Economic theory to create value for the firm

Microeconomics

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

Competency 1: Apply the theories, models, and practices of economic theory to create value for the firm. Analyze solutions with support from relevant data, resources, references, and economic principles.

Competency 3: Analyze the macroeconomic environment of corporate operations. Apply appropriate formula to compute breakeven costs. Analyze the average total cost (ATC) per unit for different levels of production.

Competency 4: Analyze the microeconomic environment of corporate operations. Analyze economic profit or loss and output using a short-run supply schedule.

Competency 5: Communicate in a manner that is professional and consistent with expectations for members of the business professions.

Communicate in a manner that is professional and consistent with expectations for members of the business professions.

Assessment Instructions

Complete each of the following economic problems.

Problem A
Choco Delite is a manufacturer of fine chocolates. Its monthly rental expense is $1,000,000. It also has $2 million in fixed labor costs. Its marginal costs are $.70 per chocolate bar. If sales fall by 30 percent from 2 million chocolate bars per month to 1,400,000 chocolate bars per month, what happens to the AFC per chocolate bar? The MC per chocolate bar? What about the minimum amount that can be charged to break even on these costs?

Problem B
Assume that the cost data in the table below are for a purely competitive producer:
Cost Data
Total Average Average Average Marginal Price Price-ATC
Product Fixed Cost Variable Cost Total Cost Cost
0
1 $25.00 $10.00 $35.00 $10.00
2 12.50 8.00 20.50 6.00
3 8.33 6.67 13.00 4.00
4 6.25 5.50 11.75 2.00
5 5.00 4.80 9.80 2.00
6 4.17 4.50 8.67 3.00
7 3.57 4.57 8.14 5.00
8 3.13 5.00 8.13 8.00
9 2.78 6.00 8.76 14.00
10 2.50 7.50 10.00 21.00
Respond to the following:

• How much economic profit can be achieved at each level of output? If price is $10.00 how much will be produced in the short run?
• Use the price of $4 to answer queAssume that a purely competitive firm is selling 2000 television sets a day at a cost of $90,000. Assume that if the firm sells 1600 units per day, its total cost would be $60,000, and if it sold 1000 units per day, it would have a total cost of $55,000.
• Calculate the average total cost at these different sales levels.
• Assuming that the cost structure for every firm in the industry is identical, do you think that the industry could be in long-run equilibrium?
• If the industry is perfectly competitive, what would be the long-run equilibrium market price?
• If your answer to c is the market price and every firm in the industry is earning a normal profit of 15 percent, calculate what that profit would be.
• Read the Problem Preparation and Submission Guidelines linked in the resources before submitting your assessment.
• You are required to submit your assessment to the Turnitin source matching tool. Refer to the FlexPath instructions on the Turnitin iGuide page, linked in the Assessment Resources.
• Refer to the Economic Problems 3 Assessment Scoring Guide to ensure that you meet the grading criteria for this assessment. Submit your assessment for faculty evaluation by clicking the linked assessme

Assessment Resources

Scoring guide icon Economic Problems 3 Assessment Scoring Guide.
Website icon Using the Scoring Guide to Enhance Your Learning.
Website icon iGuide: Turnitin.
Website icon Problem Preparation and Submission Guidelines.
Microsoft word icon Helpful Hints for Learners.