ECON1201.1J Assignment #2

Farzana Shaheen Due Date: November 18, 2019 _____________________________________________________________________ Note: Each student need to submit this assignment individually in class. Question #1: A) The table below provides the annual revenues and costs for a family-owned firm producing catered meals. (4 Points)

Total Revenues ($) 500 000

Total Costs ($)

– wages and salaries 200 000

– risk-free return of 6% on owners’ capital of 250 000 15 000

– rent 105 000

– depreciation of capital equipment 25 000

– risk premium of 8% on owners’ capital of 250 000 20 000

– intermediate inputs 150 000

– forgone wages of owners in alternative employment 80 000

– interest on bank loan 10 000

a) Calculate the explicit costs for this family-owned firm. b) Calculate the Implicit costs for this family-owned firm.

B: An electronic-parts manufacturer with U-shaped short-run cost curves is producing 10 000 units per

month and has short-run costs as follows: (16 Points)

ATC = $6.50

AVC = $4.50

AFC = $2.00

Mc = $6.90

a) At this level of output, has the firm started experiencing diminishing marginal and average

returns? How do you know?

b) At this level of output, is the firm operating below, at, or above its capacity? How do you know?

Now consider a second firm in the same industry. When it produces 10 000 units per months, its short run

costs are as follows: