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Problem #1: Break Even Analysis

The MidNight Hour, a local nightclub, earned $100,000 in accounting profit last year. This year the owner, who had invested $1 million in the club, decided to close the club. What can you say about economic profit (and the rate of return) in the nightclub business?

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Problem #2: Break Even Analysis

A baseball team agreed to pay a shortstop $25 million for 10 years. If the salary is covered by ticket sales only, how many more tickets per game would have to be sold to cover the shortstops salary in 81 home games? The average ticket price is $20.

Provide a graph to prove the answer.

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Problem #3: Long Rong Cost

In the long run equilibrium of perfect competition P=MC=AC=AR. Explain and illustrate. Compare this outcome with the outcome for a monopoly. (Illustrate and Explain)

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Problem #4: Marginal, Average and Total Cost

Complete following table by calculating marginal product and average product from the data given

Input	Total Product
0	0
1	15
2	34
3	51
4	65
5	74
6	80
7	83
8	82

Plot the total, marginal, and average products and explain in detail the relationship between each pair of curves. Explain why marginal product first rises, then declines, and ultimately becomes negative. What bearing does the law of diminishing returns have on short-run costs? Be specific. "When marginal product is rising, marginal cost is falling. When marginal product is diminishing, marginal cost is rising." Illustrate and explain graphically.

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Problem #5: Marginal, Average and Total Cost

Rosy's chicken wings is a price taker. The costs are:

Output	Cost
0	16
1	40
2	50
3	63
4	92
5	130

a) What is Rosy's profit-maximizing output?

b) How much economic profit does Rosy make if the market price per dozen chicken wings is (i)$28 (ii) S21

c) At what price would the chicken wings outlet shut down?

d) At what price would the outlet exit the industry?

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Problem #6: Marginal, Average and Total Cost

A firm's cost curves are given as follows:

Rate of Output	Fixed Cost	Variable Cost	Total Cost	Marginal Cost	Average Fixed Cost	Average Variable Cost	Average Total Cost
	(FC)	(VC)	(TC)	(MC)	(AFC)	(AVC)	(ATC)
	(1)	(2)	(3)	(4)	(5)	(6)	(7)
0	50	0
1	50	50
2	50	78
3	50	98
4	50	112
5	50	130
6	50	150
7	50	175
8	50	204
9	50	242
10	50	300
11	50 _	385

a. Complete the table

b. Draw the graphs to illustrate the AVC, ATC, and the MC. Is there any relationship between the MC and the AVC? Between MC and the ATC?

c. Given the price of the market as $42, what will be the profit maximizing output for this firm?

d. At what price will this firm break even?

e. At what price will this firm shut down?

f. Derive the supply curve of this firm.

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Problem #7: Marginal, Average and Total Cost

A firm's cost curves are given as follows:

a. Complete the table

b. Draw the graphs to illustrate the AVC, ATC, and the MC. Is there any relationship between the MC and the AVC? Between MC and the ATC?

c. Given the price of the market as $42, what will be the profit maximizing output for this firm?

d. At what price will this firm break even?

e. At what price will this firm shut down?

f. Derive the supply curve of this firm.

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Problem #8: Opportunity Cost

Answer the following questions with. respect to a firm's operation:

a) Why is maximizing profits the primary objective of a firm? What would happen to a firm that did not pursue this goal?

b) Define opportunity cost and how does it differ from accounting cost?

c) Name 3 constraints that firms face in perfect competition and discuss their impact on the firm's profit.

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Cost Theory (8 problems)