Joe Green operates a construction firm, Joe’s Construction Company, Inc., that specializes in the production of small manufactured “micro” homes. Joe’s cost schedule is presented below.

Homes per month ............................................................Total Cost per month
0 ........................................................................................................................30,000
1 ........................................................................................................................60,000
2 ........................................................................................................................90,000
3 ........................................................................................................................120,000
4 ........................................................................................................................150,000
5    ......................................................................................................................183,000
6 ........................................................................................................................221,000
7 ........................................................................................................................264,000
8 ........................................................................................................................312,000
9 ........................................................................................................................365,000
10 ........................................................................................................................423,000

The current market price for micro homes of the quality produced by Joe’s Construction is $52,000. Assume Joe wants to maximize profits. How many homes should he produce per month? What is his profit (or loss)?

b) Indicate Joe’s output and maximum profit (or minimum loss) if the market price fell to $37,000; to $32,500. Should Joe continue in business at the latter price? Explain.

Market conditions stabilize in the area served by Joe’s Construction Firm. The market demand schedule for homes of the quality produced by Joe is given below.

Price Quantity ............................Demanded Quantity Supplied
$32,000 ............................................................850
37,000 ............................................................700
42,000 ............................................................600
47,000 ............................................................500
52,000 ............................................................450

c) Suppose there are 100 competitive firms--including Joe’s Construction—that supply the area. Each firm has the same cost conditions as Joe’s firm. Fill in the supply schedule above.
d) Indicate the short run market clearing price.
e) Given competitive conditions, what will happen to the market price with time? Explain.

Answer rating: 100% (QA)

a Joes fixed cost is equal to 10000 because 10000 is the cost when zero houses are sold ... View the full answer