CLASS / COURSE: Economics
1. Bald Spot is a company that styles men’s hair. The relationship between the number of Bald Spot
hair stylists and the number of men’s hair it styles each day is presented in the Table below.
Number of Output Marginal Total Average Marginal
Stylists (number of hair cuts) Product Cost Total Cost Cost
Answer the Following:
A. Complete the marginal product column. What pattern do you see? How can the pattern be
B. Bald Spot pays its hair stylist $250 a day. Also, Bald Spot has fixed cost of $2,500. Use this
information to complete the columns for total cost and average total cost.
C. What pattern do you see in the data for average total cost? Explain the cause(s) of the pattern. To
help you answer this question complete the table below for average fixed cost and average
Number of Hair Cuts Average Fixed Cost Average Variable Cost
D. Complete the column for marginal cost. What pattern do you see? Explain the cause(s) of the
2. Consider the table below of long-run total cost for three different firms that make computer
keyboards. Output is in millions of keyboards, and long-run total costs are in millions of dollars.
Output 1 2 3 4 5 6 7
Firm A $60 $70 $80 $90 $100 $110 $120
Firm B $21 $34 $49 $66 $85 $106 $129
Firm C $22 $48 $78 $112 $150 $192 $238
Which firm experiences constant returns to scale, economies of scale, and diseconomies of scale?
Show all of your work and explain your answers.
3. The table below presents information on the market for olive oil. The demand for olive oil is
given in columns (1) and (2) of the table. Suppose the Average Total Cost and Marginal Cost of
producing a cask of olive oil are both constant at $20 per barrel.
(1) (2) (3) (4) (5) (6) (7)
Price per Quantity Demanded Total Marginal Total Marginal Economic
cask (millions of casks) Revenue Revenue Cost Cost Profit
$ 20 10.00
A. Complete columns (3) – (7) in the table for Total Revenue, Marginal Revenue, Total Cost,
Marginal Cost, and Economic Profit.
B. What would be the equilibrium price and quantity of olive oil if the market for olive oil was
‘perfectly competitive?’ Briefly explain your answer.
Hints: In a perfectly competitive market: (1) how are prices set? (2) What is long-run economic profit in a
perfectly competitive market? What information in the question is relevant to these two hints?
C. Now, suppose the market for olive oil becomes monopolized. What would be the price per cask
of olive oil and the quantity sold if the market for olive oil was a monopoly? Briefly explain your
answer. Hint: At what quantity is marginal revenue equal to marginal cost?
D. What is the amount of wealth distributed from consumers to the monopoly olive
oil company when the olive oil market moves from a perfectly competitive one
to a monopoly?
E. What is the 'deadweight loss' when the olive oil market
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SUBJECTS / CATEGORIES:
1. Business Economics
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