Version A

I. Multiple choice [4 pt each: 36 pts total]

(1)e. (2)b. (3)a. (4)b. (5)f. (6)a. (7)e. (8)b. (9)c.

II. Problems

(1) [Short-run cost: 28 pts]

1. SAVC = $20, $15, $20, $25;
2. SAFC = $24, $12, $8, $6;
3. SATC = $44, $27, $28, $31;
4. SMC = $20, $10, $30, $40;
5. Shutdown price = $15;
6. Breakeven price = $27;
7. 60 units.

(2) [Short-run cost curves and supply: 30 pts]

1. $11;
2. $8400;
3. $8;
4. $4;
5. 1700 doorknobs;
6. profit (because price is greater than breakeven price);
7. 1300 doorknobs;
8. loss (because price is less than breakeven price);
9. zero doorknobs (because price is less than shutdown price);
10. loss (because price is less than breakeven price).

III. Challenge question

Now SAFC = SATC - SAVC. At Q=500, for example, SATC = $16 and SAVC = $6, so SAFC = 16 - 6 = $10. Therefore, SFC = $10 x 500 = $5000. (Calculations at different values of Q should result in an identical final answer for SFC.)

Version B

I. Multiple choice [2 pt each: 18 pts total]

(1)c. (2)a. (3)a. (4)c. (5)e. (6)c. (7)b. (8)d. (9)a.

II. Problems

(1) [Short-run cost: 28 pts]

1. SAVC = $4, $3, $3, $4;
2. SAFC = $12, $6, $4, $3;
3. SATC = $16, $9, $7, $7;
4. SMC = $4, $2, $3, $7;
5. Shutdown price = $3;
6. Breakeven price = $7;
7. 150 units.

(2) [Short-run cost curves and supply: 30 pts]

1. $16;
2. $6000;
3. $10;
4. $4;
5. 900 doorknobs;
6. profit (because price is greater than breakeven price);
7. 700 doorknobs;
8. loss (because price is less than breakeven price);
9. zero doorknobs (because price is less than shutdown price);
10. loss (because price is less than breakeven price).

III. Challenge question

Now SAFC = SATC - SAVC. At Q=500, for example, SATC = $12 and SAVC = $4, so SAFC = 12 - 4 = $8. Therefore, SFC = $8 x 500 = $4000. (Calculations at different values of Q should result in an identical final answer for SFC.)

[end of answer key]