ASSIGNMENT 3

PRINCIPLES OF MICROECONOMICS 1201

Summer 2015
Assigned: June 8, 2015

Due: June 15, 2015

Instructions:

 Answer all the questions

 Late assignment will not be accepted.
 Get to the point. Be clear and concise.

Question one
Use the following table to work Problems a, b, and c. Seasonal Pizza is in a perfect
competitive market. The table below shows its costs of production. Sketch a graph
whenever necessary.

Total
Output cost
Pizza ($ per
per hour hour)
0 10
1  21
2 30
3 41
4 54
5 69

a. Calculate Seasonal Pizza’s profit-maximizing output and economic profit if the market
price is

Output Total cost/hour Marginal cost Fixed cost Variable cost Average
pizza/hour variable cost
0 10 0 10 0 0
1 21 11 10 11 11
2 30 9 10 20 10
3 41 11 10 31 10.33
4 54 13 10 44 11
5 69 15 10 59 11.8

1
 i. $14 a pizza
The profit maximizing quantity = 4 pizzas per hour
Revenue = quantity * price = 4 * 14 = $56
Economic profit = revenue – total cost = $56 - $54 = $2

ii. $12 a pizza

The profit maximizing quantity = 3 pizzas per hour
Revenue = 12 * 3 = $36
Economic loss = $41 - $36 = $5

iii. $10 a pizza

The profit maximizing quantity = 2 pizzas per hour
Revenue = 10 *2 = $20
Economic loss = $30 - $20 = $10

b. What is Seasonal Pizza’s shutdown point, and what is Seasonal Pizza’s economic profit if it
shuts down temporarily?
Price of $10 – minimum average variable cost is the seasonal pizza’s shutdown point, when
seasonal pizza shuts down temporarily, its economic loss = $10

c. Derive Seasonal Pizza’s supply curve.

Supply curve is the MC above the minimum AVC .

Output pizzas per hour price

$10 2
$11 3
$13 4
$15 5

Seasonal Pizza
Supply Curve
$16
$15
$14
$13
Price

$12
$11
$10
$9
2 3 4 5
Pizzas per hour