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average cost, average variable cost, marginal cost, and price

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A manufacturer of electronics products is considering entering the telephone equipment business. It estimates that if it were to begin making wireless telephones, its short-run cost function would be as follows.

Q(thousands) AVC AC MC _____________________________________________________________________

9 41.10 52.21 30.70
10 40.00 50.00 30.10
11 39.10 48.19 30.10
12 38.40 46.73 30.70
13 37.90 45.59 31.90
14 37.60 44.74 33.70
15 37.50 44.17 36.10
16 37.60 43.85 39.10
17 37.90 43.78 42.70
18 38.40 43.96 46.90
19 39.10 44.36 51.70
20 40.00 45.00 57.10

a. Plot the average cost, average variable cost, marginal cost, and price on a graph

b. Suppose the average wholesale price of a wireless phone is currently $50. Do you think this company should enter the market? Explain. Indicate on the graph the amount of profit (or loss) earned by the firm at the optimal level of production.

c. Suppose the firm does enter the market and that over time increasing competition causes the price of telephones to fall to $35. What impact will this have on the firm's productions levels and profit? Explain what would you advise this firm to do?

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a. Plot the average cost, average variable cost, marginal cost, and price on a graph

b. Suppose the average wholesale price of a wireless phone is currently $50. Do you think this company should enter the market? Explain. Indicate on the graph the ...

Solution Summary

Plot the average cost, average variable cost, marginal cost, and price on a graph.

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Marginal, average variable, and average total cost curves of a typical coffee grower...

1.Assume that the graph attached illustrates the marginal, average variable, and average total cost curves of a typical coffee grower and that the wholesale market for coffee beans is a perfectly competitive market.

a- Is there a price below which the grower will not bother to cultivate & harvest his crop, but will just let the beans rot on the tree? Explain the answer briefly.
b- Assume that as the industry expands (or contracts) the prices of the variable inputs it uses do not change. Is $5 per pound the long run equilibrium price in this market? If so, explain why. If not, explain why not and identify the long run equilibrium price.

c- Suppose there is a shortage of experienced farm labor in the coffee growing regions, so that as the industry expands the wages paid to farm labor rise. How would this affect your conclusion in part (b) about the long run equilibrium price of coffee ?

d- Suppose that technological innovation in coffee cultivation greatly reduced the amount of labor used per ton of beans harvested but required farmers to invest in substantially more large scale capital equipment and computerized hydration management systems.
Draw a diagram illustrating the effect on the typical grower's average total cost curve. (i.e. draw a "before" and "after" ATC schedule). What is the effect of this technological change on the minimum efficient scale of production?

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