Econ Homework

1

Economics 101-Principles of Microeconomics Homework 3-Professor Wallace, Spring 2017

Homework is due in class on Sunday, 23 April. Late homework will not be accepted. Any homework turned in after 5 p.m. on 23 April will be considered late. Put the name of each member of your group on each sheet of your homework.

1. A perfectly competitive firm, Frodo’s Messenger Service, delivers important documents using bicycle messengers in Kuwait. Labor is the only variable input and costs 150KD/worker per day. Calculate each total and average cost measure for the nine different labor/delivery combinations shown in the table. Complete the total revenue (TR) and profit columns using the number in the column as the price of delivery. For example the column showing TR 2.000 means total revenue with each delivery priced at 2.000 KD. Total fixed costs are 300KD/day. You may do the calculations in Excel if you wish, just copy and paste the table. Workers Deliveries TFC TVC TC AFC AVC AC MC TR

3.000 Profit 3.000

TR 2.000

Profit 2.000

0 0 xxx xxx xxx xxx 1 100 2 200 3 255 4 300 5 338 6 375 7 400 8 420

a. If price is 3.000 KD per delivery how much is profit, what is the profit-maximizing number of workers and how many deliveries are made per day? Choose the profit-maximizing option shown in the table. Profit _____________ Labor _____________ Deliveries _____________ b. If price is 2.000 KD per delivery how much is profit, what is the profit-maximizing number of workers and how many deliveries are made per day? Choose the profit-maximizing option shown in the table. Profit _____________ Labor _____________ Deliveries _____________

2

2. Now assume that the cost of labor rises to 210 KD/worker per day. Total fixed costs remain 300 KD/day. Workers Deliveries TFC TVC TC AFC AVC AC MC TR

3.000 Profit 3.000

TR 2.000

Profit 2.000

0 0 xxx xxx xxx xxx 1 100 2 200 3 255 4 300 5 338 6 375 7 400 8 420

a. If price is 3.000 KD per delivery how much is profit, what is the profit-maximizing number of workers and how many deliveries are made per day? Choose the profit-maximizing option shown in the table. Profit _____________ Labor _____________ Deliveries _____________ b. If price is 2.000 KD per delivery how much is profit, what is the profit-maximizing number of workers and how many deliveries are made per day? Choose the profit-maximizing option shown in the table. Profit _____________ Labor _____________ Deliveries _____________ Briefly explain why your answer for 2b is different from your answer for 1b.