ASSIGNMENT THREE
Analyzing Supply: Output, Production,
and Price Choice
In this assignment, you will work with output, production, and price choice of supply analysis.
Instructions:
Answer the following questions using the knowledge you gained in this course. Explain your answers
thoroughly.
1. Tour companies and cruise lines often offer last-minute fares that are far below the prices paid
by customers who have booked their trips in advance. Use marginal analysis to explain this
pricing tactic. (10 points)
Answer here.
2. Suppose that on a Saturday night at 10 p.m. a large hotel has 300 vacant rooms, with little
expectation of renting them at such a late hour on a weekend. A traveler comes in the door,
looking a bit down on his luck, and asks how much a room will cost. Since he can't afford
the normal rate of $150, the night manager decides to let him stay in the room for only $40.
Did this decision reduce or increase the hotel's profits? Explain your answer. (10 points)
Answer here.
3. Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills
on beverages; for example, a shop may charge $1.50 for a cup of coffee and only $.50 for
a refill. (10 points)
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Microeconomics
© 2022 Cornell University
Samuel Curtis Johnson Graduate School of Management
Answer here.
4. Michael Jordan averaged 35 points per game over a 100-game season. During the playoff
round of 10 games, he averaged 50 points, and in the five-game championship series, he
led the Chicago Bulls to victory averaging 40 points. For the entire season, how many points
did Jordan score, what was his average, and did the championship series pull his previous
average up or down? Explain your answer. (10 points)
Answer here.
5. The total cost of producing one unit of output is $200; two units cost $300, three units $450,
and four units $800. Fixed cost is $50. Draw the associated total cost, average cost, and
marginal cost curves, placing total cost on one graph and marginal and average cost on
a second graph. (10 points)
Answer here.
6. Using the information provided in this table, explain how much the firm should produce, first
using total profit then using marginal analysis. (10 points)
Price Total Cost
Quantity
(in dollars) (in dollars)
1 10 5
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Microeconomics
© 2022 Cornell University
Samuel Curtis Johnson Graduate School of Management
Price Total Cost
Quantity
(in dollars) (in dollars)
2 9 8
3 8 12
4 7 17
5 6 23
Answer here.
7. Assume that you have taken over management of a small concession stand on a local beach
for the summer. Your main product is ice water, popular on hot days. You've been selling 400
cups per day at $.50 each. The cups cost $.05 cents each. One of your customers suggests
that you cut the price to $.40 to make more money. For the customer to be correct, how much
must your sales increase? (10 points)
Answer here.
To submit this assignment, please refer to the instructions in the course.
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Microeconomics
© 2022 Cornell University
Samuel Curtis Johnson Graduate School of Management
