Suppose your current job pays you $225,000 a year. However, you are considering starting your own company.
Question:
- Suppose your current job pays you $225,000 a year. However, you are considering starting your own company. Based upon your research, you estimate your first-year total revenue to be $7,350,000. There are however several costs of running the company during this first year, such as the cost of materials which will equal $3,850,000, employees who will receive in total $1,400,000, utilities which will cost $1,050,000, and rent that will be paid to the landlord that equals $900,000.(17 points)
A. Based on this information, solve for both your accounting profit and economic profit
during this first year.
B. Based upon your accounting and economic profits, state whether you are better off
starting this company or staying in your current job.
2. The short-run production function for a manufacturer of Laptops is as follows:(29 points)
Number of Workers (Quantity of Labor) Total Output of Laptops
0. 0
- 65,000
- 160,000
- 240,000
- 280,000
- 300,000
- 294,000
A. Calculate the average product (AP) at each quantity of labor, except where labor = 0.
B. Calculate the marginal product (MP) at each quantity of labor, except where labor = 0.
C. State which worker(s) are part of the region of increasing marginal returns?
D. State which worker(s) are part of the region of diminishing marginal returns?
E. State which worker(s) are part of the region of negative marginal returns?
F. In the region of diminishing marginal returns, what is happening to the marginal cost values? Explain.
3. Using the following cost information, answer the three parts that follow below: (54 points)
Total Product Fixed Cost (TFC) Variable Cost (TVC)
0 $60 $ 0
1 $60 $ 45
2 $60 $ 85
3 $60 $120
4 $60 $150
5 $60 $185
6 $60 $225
7 $60 $270
8 $60 $320
9 $60 $390
10 $60 $465
A. At every total product (TP) level, solve for total cost (TC), average fixed cost (AFC),
average variable cost (AVC), average total cost (ATC), and marginal cost (MC). For the
total product of 0, you can only solve for TC.
B. Graph the TFC, TVC, and TC all on the same graph. Make sure to label the axes.
C. Graph the AFC, AVC, ATC, and MC all on the same graph. Make sure to label the axes.