Graph The Typical AFC

Graph The Typical Afc

Problem Set 4 Name: ______________________ 1a. Graph the typical AFC curve. Explain why the AFC has this shape. (Hint: It’s an “Effect”). (5 pts)

2. Below is a graph including a firm’s two potential ATC curves-- one given that they have a small factory (i.e., ATC SMALL) and one given that they have a big factory (ATC BIG). The firm initially has a small factory, is selling 100 units, and is breaking even. 2a. If they were initially breaking even, what price were they selling at with the small factory? (Options are C1, C2, C3, and C4). (2 pts) 2b. Suppose the market changes and now the firm will be selling 210 units indefinitely. In the Long Run, a firm can choose its fixed costs (i.e., its factory). In the Long Run, should the firm keep producing with a small factory or switch to the big factory, given that they are selling 210 units? Explain. (4 pts)

3. The graph below shows the Long Run Average Total Cost curve for a firm. Label or indicate what part of the curve exhibits Increasing Returns to Scale, Constant Returns to Scale, and Decreasing Returns to Scale. Then, give one reason why a firm’s LRATC curve might have Increasing Returns to Scale and one reason why it might have Decreasing Returns to Scale. (7 pts)

4. Circle the correct answer to complete the following sentences: (2 pts) 4a. A perfectly competitive industry has (one, a few, many) buyers and sellers. 4b. The product in a perfectly competitive industry is (standardized, differentiated). 5a. What is the optimal output rule? (3 pts) 5b. What is a price-taker? (3 pts) 5c. What aspect of the graph below illustrates (or is a result of the fact) that the firm is a price-taker? (3 pts) 5d. On the graph above, the firm is producing at quantity Q, where D=AR=MR=MC. Explain why this amount is profit-maximizing by explaining why producing less is suboptimal and why producing more is suboptimal. (6 pts.)

6a. Suppose there is a perfectly competitive firm in the market for apples. This firm makes apples by hiring workers that collect the apples from a massive apple orchard -- and they pay each worker $400 per day. The table below includes how many workers the firm needs to hire to produce various amounts of apples, along with the firm’s Fixed Cost. Complete the table. (16 pts) Quantity of Apples, Workers Needed, Wage, Variable Cost, Marginal Cost, Marginal Product, Fixed Cost, Total Cost, Average Fixed Cost, Average Variable Cost, Average Total Cost

6b. Assume the firm can only sell the exact amount of apples listed in this table. What’s its breakeven price? What’s its shutdown price? (6 pts)

6c. Suppose the market price for an apple is $1 and the firm can sell as many apples as it wants at the current price. Using the information from 6a, complete the following table. (6 pts) Quantity of Apples, Marginal Cost, Marginal Revenue, Price, Total Revenue, Total Cost, Profit

6d. At a price of $1, what’s the profit-maximizing quantity? And how does that relate to the Marginal Cost and Marginal Revenue values? (6 pts)

6e. Suppose the market price for an apple is $.5 and the firm can sell as many apples as it wants at the current price. Using the information from 6a, complete the following table. (6 pts) Quantity of Apples, Marginal Cost, Marginal Revenue, Price, Total Revenue, Total Cost, Profit

6f. At a market price of $.5, what’s the profit-maximizing quantity? (3 pts)

7a. On the graph below: (9 pts) - Set the price at a level where the firm is making positive profits. - Indicate where the breakeven price and where the shutdown price are. - Graphically depict the firm’s profits. (Hint: It’s a rectangle).

7b. Where on the graph above is the firm’s Short-Run Supply Curve? (4 pts)

8. On the graph below: (9 pts) - Draw the firm’s demand curve. - Draw the AVC and ATC curves such that the firm is making negative profits (or losses), but still finds it worth producing. - Draw the firm’s negative economic profits.

Disaster Recovery Principles and Practices by April J. Wells, Charlyne Walker, and Timothy Walker Chapter 4 Prioritizing Systems and Functions for Recovery © 2006 by Pearson Education, Inc. Chapter 4 Objectives ï® Identify all assets and functions in the organization ï® Prioritize disaster recovery efforts based on assets and functions ï® Differentiate between tier 1, tier 2, and tier 3 recovery targets to prioritize systems that must be recovered in the event of a disaster © 2006 by Pearson Education, Inc. Chapter 4 Objectives (cont.) ï® Determine dependencies between different data, functions, and assets ï® Distinguish between an inconvenient situation and a true disaster using disaster declaration threshold criteria © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 4 Chapter 4 Objectives ï® DR involves restoring systems ï® This chapter discusses how to ï± Prioritize systems for recovery ï± Identify dependencies and interactions between systems © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 5 Identifying Critical Assets ï® Hardware ï± Take inventory ï± Track ï® Barcode readers ï® Database/spreadsheet software © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 6 Identifying Critical Assets (cont.) ï® Software ï± Take inventory ï® Commercial ï® Customized ï® Proprietary ï® Free (often downloaded by users) ï± Document ï® Where to access ï® How to recover © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 7 Identifying Critical Assets (cont.) ï® Data ï± Inventory ï® Type of data ï® Systems data resides on ï® Interactions of systems ï± Track ï® Challenging due to frequent additions ï® Utilize data architect if available © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 8 Identifying Critical Assets (cont.) ï® Human ï± Identify ï® Employees – names, physical location, job responsibilities ï® External contacts (vendors, external support, etc.) – contact information, purpose ï± Track ï® Update information periodically © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 9 Identifying Critical Assets (cont.) ï® Other ï± These assets are specific to an industry or specific business ï± Inventory and track as previously described © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 10 Business Functions ï® Business functions are actions related to a requirement of the business ï® Examples ï± Displaying products for sale ï± Packaging and delivering products © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 11 Business Processes ï® Business processes use resources to complete a business function ï® Examples ï± Developing business plans ï± Selling a product ï± Delivering a product © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 12 Identifying Functions/Processes ï® Identify all functions/processes ï® Analyze and rank in terms of criticality to business ï± Critical, important, auxiliary rankings ï± Consider internal and external requirements ï® Critical functions ï± Generate revenue or ï± Protect assets from loss (physical or reliability) © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 13 Identifying Functions/Processes (cont.) ï® DR team needs members from many departments to determine critical and secondary processes ï® DR team identifies who is needed and where in a disaster recovery © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 14 Prioritizing DR Planning Efforts ï® Identify processes/functions that create assets ï± Those that support the organization generating revenue or increasing its value ï± Example – the system used for a chain store to send data to the home office that indicates what stock is needed © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 15 Prioritizing DR Planning Efforts (cont.) ï® Identify processes/functions that protect assets ï± Create secure or redundant system ï± Verify security/redundancy of data © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 16 Determining What to Recover When ï® Tier 1 ï± Critical to continuation of business ï± Recovery needed within 72 hours ï® Often needed within minutes or just a few hours ï± Includes areas that generate/process revenue or that support the functions and processes that do so ï® Includes backup and security © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 17 Determining What to Recover When (cont.) ï® Tier 2 ï± Important to continuation of business ï± Recovery in next incremental time period ï® Could be next day or longer ï± Consider timing of disaster ï® Processes that need to be accomplished at week-, month-, or year-end may need to move up a tier if this is when disaster occurs © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 18 Determining What to Recover When (cont.) ï® Tier 3 ï± Nonessential ï± Recovery in days or weeks following disaster ï± Useful for organization, but not needed in short run © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 19 Conducting Dependency Analysis ï® Identify relationship among systems ï± Use metadata if available ï± Consult programmers and developers ï® Prioritize into tiers ï± Consult subject matter experts ï± Consult upper management for big picture info © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 20 Disaster Declaration Criteria ï® Critical functions/processes must be restored ï® Point at which to declare varies by each organization ï® Other factors may influence ï± Internal – Can IT handle the problem? ï± External – Government mandates evacuation © 2006 by Pearson Education, Inc. Chapter 4 Prioritizing Systems and Functions for Recovery 21 Summary ï® It is necessary to identify and prioritize assets, functions, and processes for DR planning ï® Prioritizing defines which are critical, and helps in determining when to declare a disaster ï® Knowledge of how systems are interdependent is required for recovery

Paper For Above instruction

The Typical AFC curve is a fundamental concept in microeconomics, illustrating how average fixed costs behave as output changes. Typically, the AFC curve slopes downward from left to right, reflecting the "Effect of spreading fixed costs" across increasing units of output. This shape arises because fixed costs are committed costs that do not vary with the level of production; as output expands, these costs are distributed over more units, reducing the average per unit. Mathematically, AFC is computed as total fixed costs divided by quantity, so as quantity increases, AFC decreases, approaching zero in the long run. This inverse relationship results in a hyperbolic curve that continuously slopes downward, emphasizing the spreading effect of fixed costs over larger production volumes. The declining AFC thus underscores the economy of scale in the fixed cost component, though it does not necessarily imply overall cost efficiency, which also depends on variable costs and other factors.

The graph comparing the firm's ATC curves—one with a small factory (ATC SMALL) and another with a large factory (ATC BIG)—illustrates important decisions in capacity planning. Initially, when the firm is breaking even at 100 units, the price it sells at corresponds to the point where the ATC curve intersects the demand or price line. Given the options (C1, C2, C3, C4), understanding which ATC curve is relevant helps determine the initial selling price. When selling 210 units, the decision to switch to a bigger factory hinges on whether the long-run average total cost at this higher output is lower with the larger factory, enabling the firm to minimize costs and maintain competitiveness. Since in the long run firms can adjust fixed costs by choosing appropriate scale, producing at 210 units typically favors the scale with the lowest average total costs. Therefore, if ATC BIG is lower at 210 units compared to ATC SMALL, the firm should switch to the bigger factory to maximize efficiency and profitability.

The LRATC curve reflects how the firm's efficiency varies with scale of operation. The segment exhibiting Increasing Returns to Scale indicates areas where output increases proportionally more than inputs, driven by efficiencies such as specialization and economies of scale, which reduce per-unit costs. Constant Returns to Scale denote segments where output increases proportionally to inputs, implying optimal capacity utilization. Decreasing Returns to Scale are characterized by disproportionate increases in input costs relative to output, often due to managerial inefficiencies or resource constraints. Increasing Returns to Scale may occur when a firm expands production and benefits from specialization, better division of labor, or bulk purchasing. Conversely, Decreasing Returns to Scale might stem from over-expansion, diseconomies of scale, or managerial complexity, leading to higher per-unit costs.

In a perfectly competitive industry, the market structure is characterized by many buyers and sellers, resulting in a high degree of market fluidity. The products sold are usually standardized, ensuring uniformity in what consumers purchase. The optimal output rule states that firms maximize profit where marginal cost (MC) equals marginal revenue (MR). A price-taker is a firm that cannot influence the market price and must accept the prevailing market price. The fact that the firm in the graph produces where D=AR=MR=MC demonstrates this; the firm's demand curve is perfectly elastic, which is a hallmark of perfect competition. Producing at this point ensures profit maximization because producing less would mean foregoing potential profits, while producing more would entail selling additional units at a price lower than the marginal cost, thus reducing overall profit.

Considering a typical perfectly competitive firm producing apples, the table calculations involve summing labor costs and fixed costs to establish total costs and then derive averages. The breakeven price is where total revenue equals total costs, meaning the price covers average total costs, and typically occurs where the average total cost curve intersects the demand line. The shutdown price is the minimum average variable cost; below this, the firm cannot cover its variable costs and should cease production. At a market price of $1, the firm maximizes profit where MR=MC, which corresponds to producing at that quantity where MC= $1. This ensures profit maximization as any higher or lower quantity would result in reduced profit or losses. When the price drops to $0.50, the firm adjusts its output accordingly—producing where MC intersects the new Price point—aiming to maximize profit or minimize losses, considering the relevant cost curves.

The graphical depiction of a firm making positive profits involves setting the price above the average total cost, creating an economic profit rectangle. The breakeven point occurs where the average total cost curve touches the price line, indicating zero economic profit. The shutdown point is where the price falls below the minimum average variable cost, making production unprofitable. The short-run supply curve of the firm corresponds to the segment of the marginal cost curve intersecting the average variable cost curve at its minimum point, indicating the quantities the firm is willing to supply at various prices. Conversely, when the firm incurs losses but continues to produce, it does so because the price exceeds the average variable cost, covering variable expenses and contributing towards fixed costs, although overall profits are negative. Graphing this involves illustrating the demand, MC, AVC, and ATC curves, and shading the area representing economic profits or losses, depending on the market conditions.

References

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