Homework 5 (Due Monday, February 11th in class)

Part 1: Fill in the missing data in the table below, and then graphically illustrate the Total Cost (TC) curve. Label Cost on the vertical axis and Quantity of wheat (bushels) on the horizontal axis. Assume that FC = $400. 

Point on graph    Quantity of labor (L=workers)   Quantity of wheat (Q=bushels)      VC         FC        TC 

          A                               0                                      0                                                  $0                   

          B                               1                                     19                                               200

          C                               2                                     36                                               400

          D                               3                                     51                                               600

          E                               4                                     64                                                800

          F                               5                                     75                                              1000

          G                                6                                    84                                             1200

          H                                7                                    91                                             1400

          I                                 8                                    96                                             1600

 

Part 2: In 1985, the Coca-Cola Company was faced with soaring prices for cane sugar. A 1-cent increase in the price of cane sugar raised its total cost by $20 million. Rather than raise price, the company looked for a cheaper input and replaced cane sugar with corn sugar. Because corn was more plentiful in the United States, it was cheaper to produce.

Answer the following questions.

1. Why couldn't the Coca-Cola Company simply raise price?

2. Is sugar a fixed or variable input?

3. Did the switch in the input lower TC? VC? FC? ATC? AFC? AVC?