You are thinking about setting up a lemonade stand. The stand itself costs $200. The ingredients for each cup of lemonade cost$0.50. a. What is your fixed cost of doing business? What is your variable cost per cup? b. Construct a table showing your total cost, average total cost, and marginal cost for output levels varying from 0 to 10 gallons. (Hint: There are 16 cups in a gallon.) Draw the three cost curves.

You are thinking about setting up a lemonade stand. The stand itself costs $200. The ingredients for each cup of lemonade cost$ 0.50.

What is your fixed cost of doing business? What is your variable cost per cup?

The following graph represents the situation of Marguerite’s Caps, a firm selling caps in the perfectly competitive cap industry:

How much profit will she earn?

The following graph represents the situation of a perfectly competitive firm. Indicate on the graph the areas that represent the following:

Variable cost

Briefly explain whether the firm will continue to produce in the short run.

Draw a correctly labeled graph showing the SUV market in equilibrium. On your graph, show the effect on equilibrium price and quantity in the market for SUVs if the price of gasoline increases.

A constant 20-N force pushes a small ball in the direction of the force over a distance of 5.0 m. What is the work done by the force?

Sabine can't tell the difference between Coke and Pepsi—they taste identical to her. a. Sabine's marginal rate of substitution of Coke for Pepsi is what? b. Make a few indifference curves for Coke and Pepsi. Coke should be on the horizontal axis, and Pepsi should be on the vertical axis. c. This week, Sabine has $6 to spend on cola. Coke costs$1.50 per six-pack, while Pepsi costs $1.00. On the same diagram, draw Sabine's budget line for Coke and Pepsi. d. What is Sabine's ideal consumption package? Display this on your diagram. e. What combination of Coke and Pepsi will Sabine buy if the prices are the same?

Kory has $50 in her pocket, which she can spend on two things: music albums and cups of hot chocolate. Both are everyday items for her. Each album costs ten dollars, and each cup of hot chocolate costs two dollars. Determine whether this is Kory's optimal consumption bundle in each of the following scenarios. If not, what should Kory do to get her ideal consumption bundle? a. Kory is thinking about purchasing four albums and five cups of hot chocolate. At that price, her marginal rate of album substitution in place of hot chocolate is one; that is, she would be willing to forego only one cup of hot chocolate to obtain one album. b. Kory is thinking about purchasing two albums and fifteen cups of hot chocolate. The marginal utility of Kory's second album is 25, while her marginal utility of the fifteenth cup of hot chocolate is 5. c. Kory is thinking about purchasing one album and ten cups of hot chocolate. At that price, her marginal rate of album substitution in place of hot chocolate is 5; that is, she would only be willing to swap 5 cups of hot chocolate for 1 album.

Consider the following cost information for a pizzeria:

$$\begin{array}{lcc} \text{Quantity} & \text{Total Cost} & \text{Variable Cost} \\ \hline 0 \text{ dozen pizzas } & \$ 300 & \$ 10 \\ 1 & 350 & 50 \\ 2 & 390 & 90 \\ 3 & 420 & 120 \\ 4 & 450 & 150 \\ 5 & 490 & 190 \\ 6 & 540 & 240 \end{array}$$

a. What is the pizzeria's fixed cost?

b. Construct a table in which you calculate the marginal cost per dozen pizzas using the information on total cost. Also, calculate the marginal cost per dozen pizzas using the information on variable cost. What is the relationship between these sets of numbers? Comment.

Your cousin Vinnie owns a painting company with fixed costs of $\$200$ and the following schedule for variable costs:

Suppose there are 1,000 hot pretzel stands operating in New York City. Each stand has the usual U-shaped average-total-cost curve. The market demand curve for pretzels slopes downward, and the market for pretzels is in long-run competitive equilibrium. a. Draw the current equilibrium, using graphs for the entire market and for an individual pretzel stand. b. The city decides to restrict the number of pretzel-stand licenses, reducing the number of stands to only 800. What effect will this action have on the market and on an individual stand that is still operating? Draw graphs to illustrate your answer. c. Suppose that the city decides to charge a fee for the 800 licenses, all of which are quickly sold. How will the size of the fee affect the number of pretzels sold by an individual stand? How will it affect the price of pretzels in the city? d. The city wants to raise as much revenue as possible, while ensuring that all 800 licenses are sold. How high should the city set the license fee? Show the answer on your graph.

A firm uses two inputs in production: capital and labor. In the short run, the firm cannot adjust the amount of capital it is using, but it can adjust the size of its workforce. What happens to the firm’s average total cost curve, the average variable cost curve, and the marginal cost curve when a. the cost of renting capital increases? b. the cost of hiring labor increases?

Consider the following cost information for a pizzeria:

$$\begin{array}{lcc} \text { Quantity } & \text { Total Cost } & \text { Variable Cost } \\ \hline 0 \text { dozen pizzas } & \$ 300 & \$ 0 \\ 1 & 350 & 50 \\ 2 & 390 & 90 \\ 3 & 420 & 120 \\ 4 & 450 & 150 \\ 5 & 490 & 190 \\ 6 & 540 & 240 \end{array}$$

Construct a table in which you calculate the marginal cost per dozen pizzas using the information on total cost. Also, calculate the marginal cost per dozen pizzas using the information on variable cost. What is the relationship between these sets of numbers? Explain.

"Cool," Cal Cooper has $200 in his pocket to spend on cell phones and sunglasses.

a. Each cell phone is$100, and each pair of sunglasses is $50. Which bundles are included in Cal's budget? Create a diagram similar to the Figure given that depicts both the marginal utility per dollar spent on cell phones and the marginal utility per dollar spent on sunglasses. Using this diagram and the optimal consumption rule, determine how Cal should spend his money. That is, which of the bundles on his budget line will Cal select? The accompanying table demonstrates his use of cell phones and sunglasses.

b. The cost of a cell phone drops to$50, but the cost of sunglasses remains at $50 per pair. Which bundles are included in Cal's budget? Create a diagram similar to the figure given that depicts both the marginal utility per dollar spent on cell phones and the marginal utility per dollar spent on sunglasses. Use this diagram and the utility-maximizing principle of marginal analysis to decide how Cal should allocate his money. That is, from all the bundles on his budget line, which bundle will Cal choose? The accompanying table gives his utility of cell phones and sunglasses.

c. How does Cal's cell phone consumption change as cell phone prices fall? Describe the income and substitution effects of this drop in cell phone prices in words, assuming that cell phones are a normal good.