discussion session 2. marginal benefit the following table shows abby’s willingness to pay for...
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![Page 1: Discussion Session 2. Marginal Benefit The following table shows Abby’s willingness to pay for apples Calculate her marginal benefit from apples. Quantity](https://reader036.vdocuments.us/reader036/viewer/2022082818/56649ee55503460f94bf3f84/html5/thumbnails/1.jpg)
Discussion Session 2
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Marginal Benefit
• The following table shows Abby’s willingness to pay for apples• Calculate her marginal benefit from apples.
Quantity of apples (pounds)
Willingness to pay Marginal Benefit
0 $01 $72 $133 $184 $225 $25
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Marginal Benefit
• The following table shows Abby’s willingness to pay for apples• Calculate her marginal benefit from apples.
Quantity of apples (pounds)
Willingness to pay Marginal Benefit
0 $0 -1 $7 72 $13 63 $18 54 $22 45 $25 3
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Marginal Benefit
• Let’s draw Abby’s individual demand curve for apples.• If the market price of apples is $5/lb, how many pounds of
apples will Abby buy?• Abby will buy if P<MB, until P = MB, so she will buy 3 lbs
of apples.•What is her consumer surplus?• It is TB – P x Q = 18 – 5 x 3 = 18 – 15 = 3
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Cost Curves
1) Fill out the entries in the table.2) Suppose that the firm is a price taker, and market price is $9. What
quantity will the firm produce?
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 81 122 153 214 305 50
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Cost Curves
1) Fill out the entries in the table.2) Suppose that the firm is a price taker, and market price is $9. What
quantity will the firm produce?
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 81 12 82 15 83 21 84 30 85 50 8
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Cost Curves
1) Fill out the entries in the table.2) Suppose that the firm is a price taker, and market price is $9. What
quantity will the firm produce?
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 -1 12 8 42 15 8 33 21 8 64 30 8 95 50 8 20
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Cost Curves
1) Fill out the entries in the table.2) Suppose that the firm is a price taker, and market price is $9. What
quantity will the firm produce?
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - -1 12 8 4 42 15 8 7 33 21 8 13 64 30 8 22 95 50 8 42 20
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Cost Curves
1) Fill out the entries in the table.2) Suppose that the firm is a price taker, and market price is $9. What
quantity will the firm produce?
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - -1 12 8 4 12 42 15 8 7 7.5 33 21 8 13 7 64 30 8 22 7.5 95 50 8 42 10 20
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Cost Curves
2) Suppose that the firm is a price taker, and market price is $9. What quantity will the firm produce?
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - - - -1 12 8 4 12 4 42 15 8 7 7.5 3.5 33 21 8 13 7 4.33 64 30 8 22 7.5 5.5 95 50 8 42 10 8.4 20
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Cost Curves
2) Suppose that the firm is a price taker, and market price is $9. What quantity will the firm produce?The firm produces quantity where P = MC. When MC = $9, Q = 4
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - -1 12 8 4 12 4 42 15 8 7 7.5 3.5 33 21 8 13 7 4.33 64 30 8 22 7.5 5.5 95 50 8 42 10 8.4 20
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Cost Curves
3) What is the profit/loss?
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - -1 12 8 4 12 4 42 15 8 7 7.5 3.5 33 21 8 13 7 4.33 64 30 8 22 7.5 5.5 95 50 8 42 10 8.4 20
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Cost Curves
3) What is the firm’s profit/loss?Profit = Total Revenue – Total Cost = P x Q – ATC x Q = 9 x 4 - 7.5 x 4 = 6
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - -1 12 8 4 12 4 42 15 8 7 7.5 3.5 33 21 8 13 7 4.33 64 30 8 22 7.5 5.5 95 50 8 42 10 8.4 20
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Cost Curves
4) What is the break-even price?
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - -1 12 8 4 12 4 42 15 8 7 7.5 3.5 33 21 8 13 7 4.33 64 30 8 22 7.5 5.5 95 50 8 42 10 8.4 20
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Cost Curves
4) What is the break-even price?The break-even price equals to the minimum of ATC = $7
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - -1 12 8 4 12 4 42 15 8 7 7.5 3.5 33 21 8 13 7 4.33 64 30 8 22 7.5 5.5 95 50 8 42 10 8.4 20
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Cost Curves
5) What is the shut-down price?
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - -1 12 8 4 12 4 42 15 8 7 7.5 3.5 33 21 8 13 7 4.33 64 30 8 22 7.5 5.5 95 50 8 42 10 8.4 20
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Cost Curves
5) What is the shut-down price?The shut-down price equals to the minimum of AVC = $3.5
Quantity Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Average TC(ATC)
Average VC(AVC)
Marginal Cost(MC)
0 8 8 - -1 12 8 4 12 4 42 15 8 7 7.5 3.5 33 21 8 13 7 4.33 64 30 8 22 7.5 5.5 95 50 8 42 10 8.4 20
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Deriving the Market Supply Curve
Derive the market supply curve
Quantity Firm AMC
Firm BMC
01 10 152 20 253 35 454 55 655 80 100
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The Rise and Fall of Industries
Suppose that apple farming in the United States can be represented by a competitive industry. Currently the industry is in long run equilibrium.Consider the case of cost-reducing technologies. For examples, scientists develop new high-yield seeds that produce more apples at a lower cost.1) Explain how the industry would adjust to a decrease in cost of production of apples.2) Analyze what happens in the short run as well as in the long run.