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ECON 65 Quiz 1
Computation: Read the following problems carefully and solve what is being asked. (35 points)
Note: Write your solutions in a clean sheet of white paper. Take a photo of your solutions and insert
them in this document. Save your file by changing my surname with yours. Send your file thru
sarinasjulie@gmail.com with a subject “ECON65 Quiz 1”.
1. In 10 different levels of production, the Total Fixed Cost is P100 and the Variable Cost is P75 for
each unit. Suppose that the market price for this product is P50, complete the table below:
Q
5
6
8
10
15
18
16
14
12
Note:
TVC
TFC
TC
TVC = VC x Q
MC = ∆TVC/∆Q
AC
TC = TVC + TFC
TR = P x Q
MC
TR
Profit
AC = TC/Q
Profit = TR – TC
2. A firm can use three different production technologies, with capital (K) and labor (L)
requirements at each level of output as follows:
Daily
Output
100
150
200
250
Technology 1
K
L
3
7
3
10
4
11
5
13
Technology 2
K
L
4
5
4
7
5
8
6
10
Technology 3
K
L
5
4
5
5
6
6
7
8
a. Suppose the firm is operating in a high-wage country, where capital cost is $100 per unit per
day and labor cost is $80 per worker per day. For each level of output, which technology is
cheapest?
b. Then, suppose the firm is operating in a low-wage country, where capital cost is $100 per
unit per day but labor is only $40 per worker per day. For each level of output, which
technology is cheapest?
c. Lastly, what if the firm moves from a high-wage to a low-wage country but its level of
output remains constant at 200 units per day. How will its total employment change?
3. Consider a firm that uses capital and labor as inputs and sells 5,000 units of output per year at
the market price of $10. Assume that the labor costs $45,000 annually. And assume that the
total capital stock is currently worth $100,000; that the return available to investors with
comparable risks is 10% annually; and that there is no depreciation. Is this a profitable firm?
Explain your answer.
4. Two former CvSU students worked in an investment bank at a salary of P300,000 each for 2
years after they graduated. Together, they saved P250,000. After two years, they decided to
quit their jobs and start a business designing Web sites. They used the P250,000 to buy
computer equipment, desks and chairs. For the next two years, they took in P200,000 in
revenue each year, paid themselves P50,000 annually each, and rented an office for P180,000
per year. Prior to the investment, their P250,000 was in bonds earning interest at a rate of 10
percent. Are they now earning economic profits? Explain your answer.
5. The data below represents annual costs and revenue for Aurora’s Orchid Emporium. Aurora
works 60 hours a week at the Orchid Emporium. Aurora owns the building that houses the
Orchid Emporium, and if she closed the shop, she could rent out the building for $40,000 per
year and go to work for Acme Flowers and earn a salary of $30,000 per year. Calculate the
economic profit and economic cost for Aurora’s Orchid Emporium. Are these figures the same as
the accounting cost and accounting profit? Explain.
Wages Paid
Interest Paid on Loans
Other Expenditures for Factors of Production
Total Revenue
$ 22,000
8,000
26,000
$115,000