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 The cost schedule below gives the Total Variable Cost (TVC) for producing various quantities of smurfs (smurfs are an input into cat food production)

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 The cost schedule below gives the Total Variable Cost (TVC) for producing various quantities of smurfs (smurfs are an input into cat food production). The Total Fixed Cost (TFC) is $100. Calculate the following: Total Cost (TC), Average Fixed Cost (AFC), Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC). Plot TFC.TVC. and TC on a graph. Plot ATC, AVC, and MC on another graph. Note: this problem requires careful graphing: Excel is recommended. Hint: only plot the range of points for which ATC, AVC, and MC are less than or equal to 20, as in the example at the end of this assignment. TVC TC AFC AVC ATC MC 0 Output Rate Smurfs per Week 0 1 2 3 4 10 19 27 34 40 5 6 7 8 9 45 501 56 63 71 80 90 101 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 113 126 140 155 171 188 206 225 245 266 288
2. Consider the firm described in Question 1. If the market price of Smurfs is $20 each, what is the profit-maximizing output rate of the firm? What are its total revenue, total cost, and economic profit at that rate of output? Repeat for Smurf prices of $15, $10, and $5. 3. Imagine there are 1000 identical firms in the market for Smurfs. Plot the market supply curve on a new graph Imagine that the prices and quantities given by the market demand schedule satisfy the following relationship: PxQo255,000 Plot the market demand curve on the same graph as the market supply curve. What are the equilibrium price and quantity? At this market price, what is the profit- maximizing output rate of the typical firm? What is its economic profit or loss? Note for the algebraically inclined: If you want to find precise solutions, notice that the market supply curve is: Qs = 2000 + 1000 x P At equilibrium Qp = Qs = Q. Substitute the supply equation into the demand equation, then get: 1000xP? +2000xP - 255,000. Use the quadratic equation to solve for P: -2000+ 2000 - 4(1000X-255,000) = 15 2x1000 Substitute this into the demand equation to get equilibrium quantity demanded. 4. Now imagine that the government imposes a tax of S4 on each Smurf produced (this per- unit tax is simply another cost). What happens to the AVC, ATC, and MC curves of the individual firms? What happens to the market equilibrium price and quantity in the short run? At the new equilibrium price and quantity, what is the typical firm's profit-maximizing output rate in the short run? What is the typical firm's economic profit or loss? 5. Since the firms are earning economic losses in the short-run, some firms will exit in the long run. Suppose firms exit at a rate of one per week. After five weeks, what will market equilibrium price and quantity be? What will be the situation of the typical firm at this point?
6. After 100 weeks, how many firms will be left? After 100 weeks, what will market equilibrium price and quantity be? What will be the situation of the typical firm at this point? 7. How many weeks will pass before the market equilibrium price increases to $18.50? At this point what will be the situation of the typical firm? 8. How many weeks will it take for the full adjustment process to be completed? At this point, what are the equilibrium price and quantity? What is the situation of the typical firm at this point? Graph from Problem 1: 25.00 20.00 15.00 AVC -??? MC 10.00 5.00 0.00 1 2 3 4 5 6 7 8 9 10111213141516171819202122232425