Homework 3 ECO3101 Fall 2022Your answers MUST be typed (no handwritten answers will be graded). Make sure you are fully
answering the questions that are asked.
Assignments MUST be submitted in Canvas under ‘Assignments.’ Save your work as a Word file (.doc
or .docx) or as a PDF file (.pdf) and upload it on Canvas. If I cannot open your file (pay attention here
Mac users), I cannot grade your homework and you will get a zero! Thus, Word files and PDF files
only. IT IS YOUR RESPONSIBILITY TO ENSURE THAT THE FILE CAN BE OPENED USING A BROWSER!
DUE DATE: Wednesday November 16
[uploaded in Canvas no later than 11:59pm EST]
1. Assume that an apple grower is operating in a perfectly competitive market. The current market price
for a crate of apples is $30.
The firm is faced with the following Total Variable Cost (TVC) function:
TVC 30Q 0.12Q2 0.0004Q3
and the following Marginal Cost (SMC) function:
SMC 30 0.24Q 0.0012Q2
Assume that Total Fixed Cost equals $1000.
a) Find the Profit Maximizing output. Show your work.
b) What is the Total Cost of producing that output? Show your work.
c) What is the Total Revenue of producing that output? Show your work.
d) What is the economic profit earned by the firm? Show your work.
e) How would you interpret this number for the firm? Explain.
f) Suppose that this apple grower is similar to all other growers in the market, what do
you predict will happen in the long-run to the apple market and to this one firm?
Explain.
2. Suppose a perfectly competitive firm is facing the following cost structure.
a. Suppose that the current market price is $70. What is the firm’s economic profit?
b. Suppose instead that the market price decreases to $40. What is the firm’s economic
profit?
c. If P =$40, will the firm continue to produce in the short-run? Why or why not?
d. Below what price will the firm shut down? Explain your answer.
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