Constructing Supply And Demand Curves

Homework #4 Economics 102 – Microeconomics Professor Schenk Due: July 27, 2008 1. Presume a firm is manufacturing Widgets. Below is the cost schedule for the production from 1 to 10 goods. Quanti ty 1 2 3 4 5 6 7 8 9 10

Variable Cost

Fixed Cost

$11 20 27 32 40 54 70 100 135 175

$120 120 120 120 120 120 120 120 120 120

Total Cost

Margin al Cost

AVC

AFC

AC

a. Calculate the Total Cost b. Calculate the Marginal Cost (by definition the fixed cost for producing 0 is $120 and the variable cost is $0) c. Calculate the Average variable cost, average fixed cost, and average total cost. d. What are the break-even and shut-down prices?

2. Presume a consumer has a choice between Doodad and Widgets. Widgets is the same product manufactured in question #1. a. Assume the price of Doodads was $200 and the budget constraint is $2,000. Calculate the number of Widgets consumed when the price of Widgets is $100, $200, and $400. Price = $200 Doodad 10 9 8 7 6 5 4 3 2 1 0

Price = $100 Widget

Price = $200 Doodad 10 9 8 7 6 5 4 3 2 1 0

Price = $100 Widget

Price = $200 Doodad 10 9 8 7 6 5 4 3 2 1 0

Price = $100 Widget

b. Below are three indifference curves: X, Y, and Z. Note that consumption along Z is preferred to Y and Y is preferred to X. Draw the three budget constraints from 2a and all three indifference curves on a separate graph. What is the optimal consumption of Widgets when the price is $100, $200, and $400? Indifference Curve 1 Dooda Widget d 10 8 5 10 4 15

Indifference Curve 2 Dooda Widget d 10 4 3 7 2 13

Indifference Curve 3 Dooda Widget d 10 1 2 4 1 9

c. Draw the demand curve using information from 2b and draw the supply curve using information from question 1 on the same plane. What is the approximate equilibrium for Widgets?