BECN 150

Assignment 2

Summer 2023

This assignment is marked out of 20 and is worth 10% of your final mark.

Learning Outcomes

The learner will be able to:

Given a specific business situation, calculate the point of profit maximization in the short term.

Show how the profit maximizing firm responds in the long run as the costs of one or more of the inputs changes.

Discuss efficiency and surplus.

Submission Instructions

1. Answer the questions below, with all questions clearly labelled in order. You need to follow all instructions in the assignment.
2. Submit only one Word document.
3. Do not include the questions, only your answers.
4. Include a cover page with your name, student number, course name and assignment name.
5. Whenproviding references, you must cite all references using the APA format. You can find the information for creating citations and references under Getting Started, Copyright for Students, then the Humber Libraries Website link in the course.
6. PDF and Excel documents are not acceptable and will not be marked.
7. Submit the assignment using the assignment submission function only. The assignment is automatically submitted to SafeAssign, which checks for plagiarism and copying.

Note:You must name your file using your first name, last name, and the number of the assignment. For example, "tom.jones1.doc" for Tom Jones assignment 1.

1. Emailed assignments will not be marked.
2. The assignment is due on the date specified on the Critical Path.

Marks will be deducted if you do not follow all instructions.

Assignment 2

Summer 2022

A company produces designer shirts. The cost per shirt is:

Materials $10.00

Packaging $.1.50

Design on shirt $5.00

Shipping and handling $3.50

Each worker earns $15,000 annually in salary and benefits. The number of workers changes based on the level of production. This means this is a variable cost.

The artist who creates the designs for the shirts is paid $200,000 annually. Senior management are paid a total of $270,000 annually. Other annual costs are:

Taxes and Insurance $18,000

Utilities $80,000

Rent $300,000

Miscellaneous Overhead Office Expenses $32,000

The following production is possible:

No. Of Workers	0	2	4	6	8	10	12	14
No. Of shirts that can be made	0	2000	4000	6000	9000	13000	15000	14000

Question 1

Using all information provided, complete the following table. It would be easier if you set this up in an Excel spreadsheet. When you are done, please insert it into a Word document with your answers. You will use this table to answer Questions 2 and 3. We are working in dollars and cents so your answers should be in dollars and cents as well (2 decimal places.(6 marks)

# of workers	Q	TVC	AVC	AFC	TC	ATC	MC
0	0
2	2000
4	4000
6	6000
8	9000
10	13000
12	15000
14	14000

Question 2

What is the lowest price you would be willing to start producing this new product? Don't round up or down. Be accurate.(1 mark)

Question 3

If you were already committed to the fixed costs, how low could the price per shirt fall before you would consider shutting down production? Remember you have to keep paying your fixed costs whether you produce any shirts or not.If you can cover your variable costs, then anything over that will reduce your fixed costs. You may be losing money in the short run but you are losing less money.Don't round up or down. Be accurate. (1 mark)

For Questions 4 to 7, you need to fill in the chart for each question. You need to STATE how many workers, the level of production and the profit you will make. Your costs, quantities and # of workers will be the same as you calculated in Question 1.

Question 4

If the price per shirt was fixed at $150, what would you do? Remember, in the short run you can't alter fixed costs, you can just decide where to set the level of production. You need to calculate total revenue and profit or loss for each level as you are given the average revenue. You must state both what level of production you would choose and what dollar profit you would make. (1 mark)

# of workers	P x Q	Price	Q	FC + VC	Profit or Loss
	Total Revenue	Average Revenue		Total Cost	Total Profit

Question 5

If the price per shirt was fixed at $80, what would you do in the SHORT RUN? Again, remember that you have to keep paying your fixed costs in the short run. Fill in the chart and state what level of production you would use. State what is your profit at this level? (1 mark)

# of workers	P x Q	Price	Q	FC + VC	Profit or Loss
	Total Revenue	Average Revenue		Total Cost	Total Profit

Question 6

If the price per shirt was fixed at $30, what would you do in the SHORT RUN? Fill in the chart and state what level of production you would use. State what is your profit at this level? (1 mark)

# of workers	P x Q	Price	Q	FC + VC	Profit or Loss
	Total Revenue	Average Revenue		Total Cost	Total Profit

Question 7

If marketing data showed you could sell the following number of shirts at the prices indicated, how many shirts would you produce and what would be your profit? Fill in the chart. (1 mark)

# of Shirts	2000	4000	6000	9000	13000	15000
Price (AR)	$200	175	150	125	110	80

# of Workers	PxQ	price		FC + VC	Profit or Loss
	TR	AR	Q	TC	TP

Question 8 (2 marks)

Why does quantity decrease when 2 more workers are added? What is the term for this effect?

Question 9 (6 marks)

1. Explain the difference between productive efficiency and allocative efficiency. Provide an example of each, not in the textbook. (3 marks)

1. Assume that the market for shirts is not in equilibrium. Explain the concept of consumer and producer surplus. Create a graph that illustrates consumer surplus and producer surplus. Be sure to label your axises and clearly point out the areas that illustrate both consumer surplus and producer surplus. You don't need to make up numbers to answer this question. (3 marks)