Calculating Reservation Prices

Calculating Reservation Prices

<p> Calculating Reservation Prices</p><p>The table below depicts the production function for a firm that produces fast food hamburgers (Q). The firm uses a fixed input of 2000 units of capital (K=square feet in a building) and a variable input of labor and ingredients (L). </p><p>Reservation Reservation L Q MP price (w=$20) price (w=$50) 0 0 x x x 1 40 2 75 3 105 4 130 5 150 6 165 7 175 8 180 9 183 10 185</p><p> a. If the wage rate is $20 per unit of L, construct the reservation price schedule.</p><p> b. If the wage rate is $50 per unit of L, construct the reservation price schedule.</p><p>If the firm has to pay $0.50 per square foot of capital and has to pay a wage rate equal to $20 per unit of labor, calculate TFC, TVC, TC, AFC, AVC, ATC, and MC in the table below.</p><p>L Q TFC TVC TC AFC AVC ATC MC 0 0 x x x x 1 40 2 75 3 105 4 130 5 150 6 165 7 175 8 180 9 183 10 185</p><p>What level of output minimizes ATC?</p><p>If the firm sells its output in a competitive market at a P=$7, what output should it produce to maximize profits? What will profits equal at that output?</p>

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