1. Consider an entrepreneur who has decided to follow through on a business vent
ID: 1122909 • Letter: 1
Question
1. Consider an entrepreneur who has decided to follow through on a business venture. He has quit his job where he was employed as a Medical Assistant earning $2,500 a month, and has decided to run this new business venture alone as the sole proprietor. He approaches a bank with his business idea and obtains a loan for the startup and purchases the equipment and machinery that he would need for the business including the purchase of a web address and design for his business, he also takes out a 2 year lease on a building and adjoining property, with paid utilities at an excellent location and contracts with suppliers to provide him with raw materials on a six month basis at discounted bulk purchase rates. His total fixed costs on a monthly basis for this venture, which includes his forgone earnings from his previous job, are $7,500. He now needs to hire workers to operate the machines, handle orders etc. and he needs at least 5 workers to begin production. Having taking ECON 2020 while in college, he computes the total product function for his business, on a monthly basis, given the quantity of other resources he has, in the short run as follows: Quantity of Labor (Number of workers) Total Product (Output) 200 10 450 15 20 25 30 1100 1300 1400Explanation / Answer
d)
The profit gets maximum where MC=MR and ATC is at its minimum. So the answer is at output = 1300 the MC=MR and profit is 3750
e. The firm is making economic profits in short run as MC=MR. From the above table we know that profit = 3750
f. Because of short run profits and perfect competition many new firms would enter which leads to reduced profits and in the long run TR-TC=0 operating at normal profits
Output TC ATC TR Profit MC MR 200 15000 75.00 7500 -7500 450 22500 50.00 16875 -5625 30.00 37.5 800 30000 37.50 30000 0 21.43 37.5 1100 37500 34.09 41250 3750 25.00 37.5 1300 45000 34.62 48750 3750 37.50 37.5 1400 52500 37.50 52500 0 75.00 37.5Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.