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Economics 121 B & C |
Quiz 5 |
October 10, 1997 |
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Prof. A. D. Becker |
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Name:___________________________ |
Suppose that a small cigarette manufacturer has the following costs:
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Output (Q) packs per day |
Variable Cost (VC or TVC) $ |
Fixed Cost (FC or TFC) $/day |
Total Cost (TC) $/day |
Marginal Cost (MC) $/pack |
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0 |
0 |
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10,000 |
5,000 |
6,000 |
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20,000 |
12,000 |
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30,000 |
21,000 |
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40,000 |
33,000 |
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1. Compute the company's total cost and marginal cost per pack. Write your answers in the table above.
2. If this company can sell its cigarettes for $1.00 per pack, how many packs should it produce? Why?
3. How much profit will it earn if it produces the amount you suggest?
4. There are two parts to the proposed tobacco settlement. One part is that each tobacco company will have to pay part of a $350 billion restitution to states for treating tobacco-related illness. The other part is that each will have to pay a 15-cent per pack tax on cigarettes. Will either of these cause this company to change its amount of output? Why?