1. Let's explore the business of Charlie the Weaver. He owns a loom which he could sell for $100,000, but instead uses himself. He spends 1250 hours per year on his weaving. He makes little square placemats of different Hollywood scenes that sell for $7 each. Charlie spends $10,000 per year on all of the expenses of his business. Currently, and into the foreseeable future, Charlie sells 5500 placemats per year. He has been offered a job at a large textile plant where he can make $20 per hour, but this would force him to close his business. His brother-in-law is a stock broker and tells him that he can get him a guaranteed 5% return on any money he chooses to invest.

a) Find the economic profit and accounting profit of Charlie's business and explain whether or not he would stay in business. 

b) For each of the following changes, explain whether they change the accounting profit, economic profit, neither, or both, and by how much. Be sure to consider each part separately, not cumulatively. (1 point each)

i) The brother-in-law is arrested and now Charlie can only put his money in the bank and earn 2%.
ii) He hires an additional worker, who he pays $2500 per year, cuts back his own hours to 1000, and keeps the same level of production.

2. A firm has the following Total Product function

Labor Output Labor Output Labor Output
0 0 4 69 8 115
1 12 5 86 9 116
2 30 6 100 10 116
3 50 7 110

a) Find the Marginal Product and use this information to determine where diminishing returns sets in. 

b) If labor costs $684 per unit, find the Marginal cost at Q = 30, Q= 50 and Q = 69. Round any decimal answers to 1 place. Explain how these answers are consistent with the MP you found in (a). 

3. A firm has standard shaped costs where the minimum of AVC is $15 at a quantity of 9 and the minimum of ATC is $45 at a quantity of 15. The fixed cost is $345.
Draw a picture of the MC, ATC, and AVC for this firm specifically labeling the values for each of these costs at q = 15 and q = 9. Round any decimal answers to 2 places.

4. Answer the following based on the table below which is the cost of one firm in a perfectly competitive market.

Q FC VC TC MC AVC AFC ATC
0 NA NA NA NA
1 10
2 9
3 91
4 37
5 296 10
6 17
7 90
8 46
9 414
10 23.4

a) Fill in the missing items in the following table. I would suggest you complete the table, cut it out, and paste it (either electronically or physically) into your sheet you turn in. 

b) Find the profit maximizing quantity and profit for firm in the short run if the price is $30. 

5. The short run variable costs below are for a firm in a perfectly competitive market. All firms producing this good have the same costs. The demand is the market demand for the good this firm produces

FIRM MARKET DEMAND
Q VC P Q P Q
1 12 10 500 19 320
2 21 11 480 20 300
3 31 12 460 21 280
4 43 13 440 22 260
5 58 14 420 23 240
6 78 15 400 24 220
7 105 16 380 25 200
8 140 17 360 26 180
18 340 27 160

Find the quantity this firm will produce in the short run if the price of output is $20. If $20 is the short run competitive equilibrium price, find the number of firms in the market.