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Kobotan [32]
4 years ago
15

Suppose Nicholas owns a business making Christmas tree ornaments. Currently, he makes 300 ornaments a month. At this level of pr

oduction, each additional ornament takes him 30 minutes to make and costs him $5 in materials. Nicholas makes his ornaments in a small studio that he rents for $300 a month. Nicholas can easily increase or decrease the amount of time he spends making ornaments, and he can easily go to the store to buy additional materials to make the ornaments, but he has a year-long lease on his studio, so he has to pay his monthly rent no matter how many ornaments he produces each month. Nicholas values his time at $10 per hour. Other than his time, the cost of the materials and the rent on his studio, Nicholas has no additional production costs.
a At Nicholas's current level of production, what is the marginal cost of making an additional ornament each month?
b. At Nicholas's current level of production, what is the monthly average fixed cost of each ornament?
c. Assuming that it is not Nicholas's interest to shut down, should he change his current monthly level of production if he can sell each ornament for $15? If so, how should his production change?

1. He should not make any changes.
2. He should decrease the number of ornaments he makes each month.
3. He should increase the number of ornaments he makes each month.

d. How would Nicholas’s profit-maximizing level of output each month differ if his monthly rent were $350 instead of $300?

1. His profit-maximizing level of output would be higher.
2. His profit-maximizing level of output would be lower.
3. His profit-maximizing level of output would not change.

e. How would Nicholas’s profit-maximizing level of output each month differ if the materials to make each ornament cost $4 instead of $5?

1. His profit-maximizing level of output would not change.
2. His profit-maximizing level of output would be lower.
3. His profit-maximizing level of output would be higher.
Business
1 answer:
Fudgin [204]4 years ago
3 0

<u>Solution and Explanation:</u>

1. MC = Cost of raw material + Cost of time

MC = 5 plus (10 divide by 2)

MC = $10

2.  TFC = $300

Q = 300 ,  AFC = TFC/Q = 300 divide by 300 = $1

3.  His profit maximizing output would be higher

Reason: P = MR = $15 ,  MC = $10

Since MR > MC, and at the profit maximizing point MR = MC, it is better for Nicholas to increase his output.

4.  His profit maximizing output would be higher

Reason: P = MR = $15 ,  MC = $4 + $5 = $9

Since MR > MC, and at the profit maximizing point MR = MC, it is better for Nicholas to increase his output.

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8 0
2 years ago
Suppose an economic boom causes incomes to increase. Assume that smartphones are a normal good. This will cause the_____________
Volgvan

Answer: Option (D). demand for smartphones to increase, and both the price of smartphones and quantity of smartphones traded would rise.

Explanation: Economic boom is a period of economic expansion resulting in higher GDP, lower unemployment and rising asset prices. Economic boom positively affect the key economic indicators will rise. Gross domestic product, which measures a nation’s economic output increases and productivity increases in return. Economic boom will increase the demand for smartphones and will in turn increase both the price of smartphones and quantity of smartphones and quantity of smartphones traded would rise.

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Compute the present value of $1,400 paid in three years using the following discount rates: 7 percent in the first year, 8 perce
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Answer:

(1) If discount rate is 7%, present value of $1,400 paid in three years is $3,674.04

(2) If discount rate is 8%, present value of $1,400 paid in three years is  $3,607.94

(3)If discount rate is 9%, present value of $1,400 paid in three years is  $3,543.81

Explanation:

We can use excel or manually calculate as below:

(1) Discount rate is 7%:

= $1400/(1+7%)^3+$1400/(1+7%)^2+$1400/(1+7%) = $3,674.04

(2) Discount rate is 8%:

= $1400/(1+8%)^3+$1400/(1+8%)^2+$1400/(1+8%) = $3,607.94

(3) Discount rate is 9%:

= $1400/(1+8%)^3+$1400/(1+9%)^2+$1400/(1+9%) = $3,543.81

I attached the calculation in excel for your reference.

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Hello there I hope you are having a great day :)

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