Assignment

1. You run a firm producingTV commercials for local businesses. You pay your workers $7.25/hour each, to work a 4-hour shift. You've spent $800 to rent cameras and lighting equipment and enough studio space to produce up to 4 commercials comfortably, and up to 10 if the space is used very efficiently. You are deciding how many actorsand crew to hire to maximize profits. The more workers you hire, the more commercials you can produce.

a) Fill in the tableon the Excel sheet marked "question_1_and_2", computing the following for each number of commercials:
i) Fixed cost
ii) Variable cost
iii) Total cost
iv) Average fixed cost
v) Average variable cost
vi) Average total cost
vii) Marginal cost

At the bottom of each column show the general formulas you are using to compute them. The entries to complete are highlighted in yellow. The cells marked "#N/A" (not applicable) which are shaded gray should be left as they are. Notice that for marginal cost, the entries you will complete are at 0.5, 1.5, etc to denote that they are between the number of commercials 0 and 1, 1 and 2, etc.

b) For the production function:
i) Plot it.
ii) Describe its shape, and explain why it looks the way it does.

(Hint: you can make plots in Excel by highlighting the columns you need, and using the built-in plots under Insert/Charts/Scatter. Make sure to label everything.)

c) On one graph, as a function of the number of commercials, plot:

i) Average fixed cost
ii) Average variable cost
iii) Average total cost
iv) Marginal cost

d) For each curve in (c), describe its shape, and explain why it looks the way it does. Also, what is the relationship between the marginal cost curve and average total cost?

e) What is the efficient scale of this firm? How do you know?

2. Attracted by Georgia's tax break for TV and movie production, there are dozens of TV production companies operating in the Atlanta area, and the boom in the economy means lots of local businesses want a commercial made to sell their products. The ratings of the commercials on YouTubesuggest that all theTV production companies provide a similar quality of commercial. One firm has quoted your friend Caroline $300 to produce a commercial for her cookie business.

a) Explain to your friend why there's no point ringing around for a better quote.

b) Fill in the table on the Excel sheet marked "Question-Data", computing the following for each number of commercials:
i) Total revenue
ii) Average revenue
iii) Marginal revenue
iv) Total profit

At the bottom of each column show the general formulas you are using to compute them. The entries to complete are highlighted in orange. The cells marked "#N/A" (not applicable) which are shaded gray should be left as they are. Notice that for marginal revenue the entries you will complete are at 0.5, 1.5, etc to denote that they are between the number of commercials 0 and 1, 1 and 2, etc.

c) If you are profit-maximizing, how many workers should you hire? What is your profit?

d) Thinking about marginal cost and marginal revenue, why wouldn't you produce fewer commercials, and why wouldn't you produce more?

e) If wages rose to $28/hour:

i) Would the firm temporarilyshut down in the short run?
ii) Would the firm permanently exit in the long run, if market conditions stayed the same?

(Hint: First compute the new optimal quantity.)

iii) In the long run, with free entry and exit, if every TV production company faces the same costs, how much profit does each onemake? Assuming the workers' wages and other costs stay the same for all production companies, to what amount would the price adjust?

3. Every other firm stops working over Memorial Day weekend, and you are the onlyTV production company left operating. 10 local businesses are deciding whether to pay you to produce a commercial for them. Their demand schedule is given on the Excel sheet marked "question_3", where the "Price" column represents the maximum price that can be charged for the corresponding number of commercials. You now pay your workers $25/hour.They still work a 4-hour shift. "Number of Workers Required" in the "question_3" tab shows that it now takes 2 workers to complete each TV commercial. The cost of hiring equipment and studio space is still $800.

a) Fill in the table on the Excel sheet marked "question_3", computing the following for each number of commercials:

i) Fixed cost
ii) Variable cost
iii) Total cost
iv) Average fixed cost
v) Average variable cost
vi) Average total cost
vii) Marginal cost
viii) Total revenue
ix) Average revenue
x) Marginal revenue
xi) Total profit

b) On one graph, as a function of the number of commercials, plot:

i) demand
ii) marginal revenue
iii) marginal cost

c) If you are profit-maximizing, how many workers should you hire?

d) At the equilibrium number ofcommercials, what is:

i) total profit?
ii) total producer surplus? (Hint: What is the relationship between producer surplus and profit?)
iii) the price?
iv) total consumer surplus? (Hint: first compute it for each commercial separately.)
v) total surplus?

e) If you could perfectly price discriminate, charging each customer their valuation:

i) How many workers should you hire?
ii) What is your total profit? (Hint: Compute revenue for each commercial separately.)
iii) How much is total producer surplus?
iv) How much is total consumer surplus?
v) How has price discrimination affected total surplus? Why?

Attachment:- Quetion-Data.rar