Question

Replacement Question 1

Green Acres is growing Green Beans in Green Land, Georgia. Assuming that Green Acres is buying and selling in both the input and output markets in perfect competition, answer the following questions:

1. Complete Table 2 (see attached Excel Sheet)
2. At what point will Green Acres will be at the most efficient point of production? Why?
3. What is the optimum point of production? How do you prove it? What are the net revenues at which profits are maximized?
4. If costs of production goes up, what choices does Green Acres have? Why?  
5. At what point will Green Acres will have to should shut down its business? Why (hint: use the shutdown rule for which you will have to derive the average fixed and average variable cost from the information provided)

II. Cost nd Price Data for Green Acres
Quantity per day, Q	TC	Price/Output per unit	TR	ATC	MC	MR	Net revenues, NR
0	$25	$10
1	35
2	41
3	45
4	47
5	50
6	53
7	58
8	67
9	79
10	100

Answer 1

1).

Consider the given problem here we have given the “TC” and “P” for each values of “q”, => here we can find out the “TR” which is the product of “P” and “q” and “MR” is the additional revenue from additional production. Now, form “TC” we can find out the “ATC” which is the ratio of “TC” to “q” and “MC” is the additional cost from additional production. Consider the following table.

2).

So, here the most efficient production point is “q=7” where the “ATC is minimum.

3).

Here optimum production point is “q=8”. Since for “q=8” MR > MC, => the firm should increase production but for “q=9” MR < MC, => it is optimum to reduce “q”, => the optimum production is “q=8”.

So, at “q=8” the “net revenue” is “13” which is maximum.

4).

Now, if the cost goes up, => the MC for each “q” also increases given the value of “MR”, => the optimum production point decreases and the “net revenue” will also decreases. So, under this condition the optimum production point should be less than “8”.

5).

So, here at “q=0” the cost is “TC=25”, => it is the fixed cost. So, here we get the “TVC=TC-25”. Now, the AVC is the ratio of “TVC” to “q”. So, the above table shows the AVC for all “q”. So, here the shutdown point is the “minimum of AVC”. So, here at “q=6” the AVC is minimum. So, here the shutdown price is “P=4.67”.