FAR EASTERN

UNIVERSITY
Institute of Architecture and Fine Arts

PRE- FINAL TOPIC ABOUT (COST OF

PRODUCTION)
ACTIVITY 1
ECON 1N Sec-9 M/TH / 7:30 – 9:00

SUBMITTED BY:
Gallos, Jus (2014652491)
Ibatuan, John Carlo D. (Student No.)
Rambaud, Prince Albene (Student No.)
Reblora, Clark M. (2015680331)
Trogillo, Sem S. (2015718901)
A college student, Mr. Ramón Dela Cruz, often purchases candy bars or
bags of potato chips between classes; he tries to limit his spending on
these snacks to $8 per week. A bag of chips costs $0.75 and a candy bar
costs $0.50 from the vending machines on campus. He has been
purchasing an average of 6 bags of chips and 7 candy bars each week.
Mr. Dela Cruz is a careful maximizer of utility, and he estimates that the
marginal utility of an additional bag of chips during a week is 6.
In your answers use B to denote candy bars and C to denote potato
chips.

QUESTION:

1. How much is he spending on snacks? How does this amount

compare to his budget constraint? 
GIVEN:

BUDGET PER ITEM COST PURCHASED

WEEK ITEM
QUANTITY
(B) Candy Bars $0.50 7 per week
$8 (C) Potato Chips $0.75  6 per week

ANSWER:
Based on the given provided, Mr. Ramon Dela Cruz has limited his
spending to $8 per week thus this represents his budget constraint. On the
other hand, his total spending is represented by his spending on candy
bars (B), and spending on potato chips (C). Thus, his total spending on
snacks is represented by this formula:
B (Candy bar) * Pb (Cost of candy bar) + C (Potato chips) * Pc (Cost of
potato chips) = Total spending on snacks
(7 * 0.50) + (6 * 0.75) = 3.5 + 4.5 = 8
In conclusion with this, his total spending on snacks is $8 which is within
the capability of his budget constraint. (75 words)
QUESTION:
2. What is the marginal utility of an additional candy bar during the
week?
GIVEN:

ITEM COST MARGINAL UTILITY

(B) Candy Bars $0.50 Unknown

(C) Potato Chips $0.75  6

ANSWER:
In solving the marginal utility for additional candy bar, we need to
MUc( Marginal utility of potato chips)
represent it with the formula = MUb ¿ ¿
Pc (Cost of potato chips)

Since we already have the given, we will do a direct substitution.

MUc( 6) MUb MUc(6) Pb(0.50)
= that leads to = MUb,
Pc (0.75) Pb (0.50) Pc( 0.75)

Thus, the marginal utility of an additional candy bar is equal to 4. (62

words)
 FAR EASTERN
UNIVERSITY
Institute of Architecture and Fine Arts

PRE- FINAL TOPIC: MARKET STRUCTURES

PERFECT COMPETITION
ACTIVITY 2
ECON 1N Sec-9 M/TH / 7:30 – 9:00

SUBMITTED BY:
Gallos, Jus (Student No.)
Ibatuan, John Carlo D. (Student No.)
Rambaud, Prince Albene (Student No.)
Reblora, Clark M. (2015680331)
Trogillo, Sem S. (2015718901)
QUESTIONS:

a. What is the average price per shirt washed and ironed in Makati City?
In Santa Barba?

1. Magnolia Too Php. 80.00

2. Santa Barbara Cleaners Php. 80.00

3. Cal’s Cleaners Php. 80.25

4. Pressed 4 time Php. 80.50

5. King’s Cleaners Php. 80.50

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Makati City has an average of Php. 80.25

Santa Barba has an average of Php. 80.00

b. Draw Typical Marginal cost and average total cost curves for Cal’s
cleaners in Makati City, assuming it is a perfectly competitive firm but is
making profit on each shirt in the short run. Mark the short-run equilibrium
points and shade that are corresponds to the profit made by the dry
cleaner.

 Base on Marginal cost diagram, Cal Cleaners profit will be on up

and downs or on average, because of popularity and cost
competitiveness.
 To gain more profit the price should goes down to the nearer lowest
price.
c. Assume Php. 80.25 is the short-run run demand and supply curve for
the market. Label the equilibrium point.

 Equilibrium point (broken line)

d. Observing profits in the Makati City area, another dry-cleaning service.

Diamond cleaners, enters the market. It charges Php. 70.95 per shirt.
What is the new average price of washing and ironing a shirt in Makati
city? Illustrate the effect of the entry on the average Makati city price by
the shift of the short-run supply curve, the demand curve, or both.

 The new average price of washing and ironing in Makati City will be
Php 78.70
 The effect of this newly opened firm, local firm will suffer on
popularity and will start losing income, since they had to adjust
lower or near average to be competent to newly opened firm.
 e. Assume that Cal’s Cleaners now charges the new average price
and just breaks event (that is, makes zero economic profit) at this
price. Show the likely effect of the entry on your diagram in part b.

 The demanded price is lower than average price at Php 78.70,

each firm within the area will be force to get lower price as possible
that will affect the economic profit to zero profit.