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Homework answers / question archive / Notes: Please type your answers and submit your work either in word format or pdf format
Notes: Please type your answers and submit your work either in word format or pdf format.
Problem 1
An accounting professor is considering opening his own consulting firm. To do so, she will have to quit her current job, that pays $125,000 a year, and take over a building that she owns and currently rents to her friend for $15,000 a year. Additionally, she will have to withdraw $50,000 from her savings, that pays 5 percent per year. Her expenses at the firm have been estimated as follows: $80,000 for employee salaries, $6,000 for insurance, $5,000 for utilities, and $9,000 for supplies. She anticipates annual revenues of $250,000. Determine:
The annual explicit costs
The annual implicit costs
The total annual opportunity costs
The annual accounting profits
The annual economic profits
Problem 2
The total cost equation of a firm producing q units of a certain good X is given by:
TC=10,000-200q-8q^2+1/10 q^3
Part 1
a. What is the firm’s total fixed cost? Explain your answer!
b. What is the firm’s variable cost? Explain your answer!
c. What is the firm’s average variable cost? Explain your answer!
d. What is the firm’s average variable cost of producing q=150 units of good X? Explain your answer!
Part 2
e. What is the total cost of producing q=200 units of good X?
f. As a manager of the firm, you are contemplating the idea of increasing production to q=250 units. What is the total cost of producing q=250 units of good X?
g. What will be the additional total cost incurred by the firm when production is increased to q=250 units instead of stopping production at q=200 units.
h. As a manager of the firm, what is the minimum price (lowest price) you will charge for each unit of the 50 additional units of good X produced?
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