Chapter 5, The Behavior of Firms Video Solutions, Price Theory and Applications

Problem 1

Suppose a farmer is deciding how many acres to spray. The crop duster charges $$\$ 7$$ per acre. The total benefit of spraying is given by the following chart:
$$
\begin{array}{cccccc}
\begin{array}{c}
\text { No. of Acres } \\
\text { Sprayed }
\end{array} & \begin{array}{c}
\text { Total } \\
\text { Benefit }
\end{array} & \begin{array}{c}
\text { Marginal } \\
\text { Benefit }
\end{array} & \begin{array}{c}
\text { Total } \\
\text { Cost }
\end{array} & \begin{array}{c}
\text { Marginal } \\
\text { Cost }
\end{array} & \text { Net Gain } \\
\hline 0 & \$ 0 & & & & \\
1 & 12 & & & & \\
2 & 22 & & & & \\
3 & 30 & & & & \\
4 & 37 & & & & \\
5 & 42 & & & &
\end{array}
$$
a. Fill in the remaining columns of the chart.
b. Use Method I to determine how many acres the farmer should spray.
c. Use Method II to determine how many acres the farmer should spray.
d. If the crop duster adds a fixed fee of $$\$ 5$$ to come out to the farm, how many acres should the farmer spray? Predict the answer without creating a new chart. Then create a new chart to verify your prediction.
e. If the crop duster raises his fee to $$\$ 10$$ per acre, how many acres should the farmer spray?

Victor Salazar

Numerade Educator

09:35

Problem 2

The chart below shows the demand curve for dog food at Charlie's dog food factory and the total cost of producing various quantities:
$$
\begin{array}{ccccccc}
\text { Quantity } & \text { Price } & \begin{array}{c}
\text { Total } \\
\text { Revenue }
\end{array} & \begin{array}{c}
\text { Marginal } \\
\text { Revenue }
\end{array} & \begin{array}{c}
\text { Total } \\
\text { Cost }
\end{array} & \begin{array}{c}
\text { Marginal } \\
\text { Cost }
\end{array} & \text { Profit } \\
\hline 1 & \$ 15 / \mathrm{lb} & & \$ 3 & & & \\
2 & 13 & & 8 & & & \\
3 & 11 & & 15 & & & \\
4 & 9 & & 24 & & & \\
5 & 7 & & 35 & & & \\
6 & 5 & & 48 & & &
\end{array}
$$
a. Fill in the rest of the chart.
b. How much dog food should Charlie sell, and what price should he charge? Answer first using Method I and then using Method II.
c. If Charlie is required to pay a $$\$ 5$$ annual license fee to operate his dog food factory, what happens to his total cost numbers? What happens to his marginal cost numbers? What happens to the amount of dog food he sells and the price he charges?
d. If Charlie is required to pay an excise tax of $$\$ 6$$ per pound of dog food, what happens to his total cost numbers? What happens to his marginal cost numbers? What happens to the amount of dog food he sells and the price he charges?

Oluwadamilola Ameobi

Numerade Educator

Problem 3

What is the equimarginal principle?

Check back soon!

00:14

Problem 4

What is the formula for profit in terms of revenue and cost? What is the formula for revenue in terms of price and quantity?

James Kiss

Numerade Educator

07:35

Problem 5

Which of the following can affect a firm's behavior, and in what way?
a. A change in variable costs.
b. A change in fixed costs.
c. A change in the demand for the firm's product.
d. A competitor leaving the industry.

Oluwadamilola Ameobi

Numerade Educator