Economics 1101

Assignment 3
Due: by 2:30pm Friday, October 16, in the box on the porch of 6206 University Ave.
NOTE: Make sure that you write your name and student ID on your assignment. If you have
worked as part of a group, make sure that all members of the group have their names and ID
numbers on the assignment. A group must have no more than three members.

1. Assume you can either work making $8 per hour working at a Tim Hortons, or you
can open up a rival hot dog stand to the Dawg Father, The Dawg Father II. You must
decide how much time to spend on each activity each day (up to 8 hours total). If you
earn $1.00 for each hot dog sold:
a. (2 points) Complete the following table by calculating the additional hot dogs
sold for each hour, and the income earned for each hour spent selling hot dogs.
b. (2 points) Use the information in the table to determine how you will allocate
your time (i.e. how many hours selling hot dogs and how many hours working at
Tom Hortons).
Hours selling hot dogs

Quantity of hot
dogs sold

0
1
2
3
4
5
6
7
8

0
18
33
47
59
69
75
79
82

Additional hot dogs

each hour

Income earned each

hour selling hot dogs

Price
Supply

5
4
A

20 30

Quantity

2
You are fired from Tim Hortons, so now you spend all your time working at The Dawg
Father II. You currently face a market price for your hot dogs of $4. However, you want to know
how the hot dog market will respond to price changes. The graph above shows the hot dog
industrys supply curve.
a.

Calculate the price elasticity of supply at point A. (1.5 points)

b.

Based on the elasticity of supply in part (a), if the price increases by 10%, by how much will
the quantity supplied change? (1 point)

c.

In each of the following cases, what will happen to the price elasticity of supply? Will
supply become more inelastic, more elastic, or not change? (1.5 points)
i. Inputs into hot dog making become easier to transport.
ii. New inputs into hot dog production are found.
iii. The Dawg Father II moves from the short run to the long run.

3.

Total
Product
(100s of
hotdogs)
(1)
0

You are running The Dawg Father II. You can add to your output by hiring more
workers. Imagine you have the following costs:

Total
Fixed
Cost ($)
(2)

Total
Variable
Cost ($)
(3)

600

600

100

600

150

600

230

600

380

600

580

600

800

600

1200

600

1700

Total
Cost ($)
(4)

Average
Fixed
Cost($)
(5)

Average
Variable
Cost($)
(6)
--

Average
Total
Cost($)
(7)
--

Marginal
Cost($)
(8)
--

a. Fill in the rest of the cost chart. (5 points)

b. Graph the ATC, AVC, AFC, and MC curves all in one graph. (You can use Excel or a
different program to help.) (2 points)
4. The financial information for The Dawg Father II is given below (all values are monthly).
Cost of frozen hot dogs
Wage costs
Hot dog stand lease
Monthly revenue

$2500
$600
$1100
$5200

Answer each of the following, based on the information provided.

a.
b.

c.

Calculate your accounting profit. (1 point)

If your other employment opportunity is to earn $900 per month playing music in a band
(and you are equally happy selling hot dogs or playing in a band), what is your economic
profit? Should you continue selling hot dogs? Explain. (2 points)
What happens to your economic profit if you enjoy playing in a band and would be willing
to forgo up to $200 per month to work in a band rather than selling hot dogs? Should you
continue selling hot dogs? Explain. (2 points)