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ECON 2106 Little Suzie’s Lemonade Cost Analysis Activity Worksheet

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ECON 2106 – Microeconomics – Cost Analysis
Dr. Makinde
Cost Analysis Activity Worksheet
Little Suzie’s Lemonade
Assuming Little Suzie wants to produce and sell 17 cups of Lemonade, please complete and use the cost
schedule faced by Little Suzie for her Lemonade business to plot the Marginal Revenue and Marginal Cost
Curves. Do answer the follow-on questions to examine implications for determining profit.
Table 1: Cost and Profit Schedule for Little Suzie’s Lemonade
Cups of
Lemonade
(q)
Fixed
Cost
(FC)
(Cost of
Kiosk)
Variable
Cost(VC)
(Cost of
Lemons,
Labor,
Water,
Sugar)
Total
Cost
(TC)
TC = FC
+ VC
Marginal
Cost(MC)
MC =
Change in
TC/Change
in q
Average
Variable
Cost
(AVC =
VC/q)
Average
Total
Cost
(ATC=
TC/q)
Marginal
Revenue
MR=
Change in
TR/ Change
in q
Profit
Profit =
TR-TC
0
$10
$0
$10
--
--
∞
--
-$10
2
$10
$1
$11
0.50
0.50
5.50
$2
-$6
5
$10
$2
$12
0.33
0.40
2.40
$2
-$2
9
$10
$3
$13
0.25
0.33
1.44
$2
$8
12
$10
$4
$14
0.33
0.33
1.16
$2
$12
14
$10
$5
$15
0.50
0.35
1.07
$2
$13
15
$10
$8
$18
3.00
0.53
1.20
$2
$12
16
$10
$14
$24
6.00
0.87
1.50
$2
$8
17
$22
PLOT THE MC and MR Curves using above schedule.
Scenario:
i. When do you think Suzie will make the most
profit? The smaller the distance between MR
and MC the greater the benefit will be.
Therefore selling 14 glasses is most beneficial
as if selling less than 14 she will miss the
chance to gain more profit as the difference
between MR and MC will increase as she
decreases the glasses and if she sells more
than 14 then MC will grow to less profit than
MR would make her earn. Which is why the
maximum benefit will be offered by 14
glasses.
ii. Should Little Suzie produce and sell the 17
units? The total cost will be 22 + 10 at 17
units (10 is fixed cost that does not change
with output level) = $32. And TR will be $2 *
17 ($2 is a constant price as MR is expensive
derived from TR / Q just like $4/2 at 2 glasses
7
6
5
4
3
2
1
0
0 2 4 6 8 10 12 14 16 18
E
MR
MC
Q
MC
MR

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ECON 2106 – Microeconomics – Cost Analysis Dr. Makinde Cost Analysis Activity Worksheet Little Suzie’s Lemonade Assuming Little Suzie wants to produce and sell 17 cups of Lemonade, please complete and use the cost schedule faced by Little Suzie for her Lemonade business to plot the Marginal Revenue and Marginal Cost Curves. Do answer the follow-on questions to examine implications for determining profit. Table 1: Cost and Profit Schedule for Little Suzie’s Lemonade Cups of Lemonade (q) Fixed Cost (FC) (Cost of Kiosk) 0 2 5 9 12 14 15 16 17 Variable Cost(VC) (Cost of Lemons, Labor, ...
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