1. As the owner/operator of a petting zoo, you run a side business breeding llam
ID: 1107615 • Letter: 1
Question
1. As the owner/operator of a petting zoo, you run a side business breeding llamas for other petting zoos. Based on market characteristics, the market for llamas is considered to be perfectly competitive and you can sell as many or as few as you wish for $375. Due to crowding and difficulty in finding staff, the cost of raising a llama increases faster as faster as the number of llamas increase. This is shown below Total Cost 50 125 225 350 530 750 1100 1500 2100 3100 4500 7500 2 4 10 12 a. Does the perfectly competitive market structure seem to fit in this example? Why or why not? Would another structure seem more appropriate: b. What is happening to marginal cost in this problem? Is this unusual? e. Whatisthe profitmxizing choice for the zoo?Explanation / Answer
a. Yes is it follows the characteristics of perfect competition and they are:
- The good or llama sold is identical in nature and there is no product differentiation
- Anyone can sell at a price of $375 and so are price takers
- Easy to enter and any one can set up business
b. Normally the MC curve reaches a minimum and starts to increase with increase in production but here it keeps increasing because of crowding and difficulty in finding staff.
c. The profit maximizing level is at where profit is at maximum and here it is at 7
llama Total Cost MC P=MR TR Profit 0 0 375 0 0 1 50 50 375 375 325 2 125 75 375 750 625 3 225 100 375 1125 900 4 350 125 375 1500 1150 5 530 180 375 1875 1345 6 750 220 375 2250 1500 7 1100 350 375 2625 1525 8 1500 400 375 3000 1500 9 2100 600 375 3375 1275 10 3100 1000 375 3750 650 11 4500 1400 375 4125 -375 12 7500 3000 375 4500 -3000Related Questions
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