Final Exam Review Slides

Homework Set #4

ECO 4101

Due: December 6, 2012

Ch11 problems:

1. What is the quantity produced and profits of a firm with marginal cost = 10 + 2Q if ATC = 10 + Q + 50/Q and price is 35? What are the fixed costs of this firm?

2. Suppose that all firms in a competitive industry are operating at output levels for which price is equal to long-run marginal cost. True or False: This industry is necessarily in long-run equilibrium. Why or why not?

3. A perfectly competitive firm faces a price of 10 and is currently producing at a level of output for which marginal cost is equal to 10 on a rising portion of its short-run marginal cost curve. Its long-run marginal cost is also at a rising portion and is equal to 12. Its short-run average variable cost is equal to 8. The minimum point on its long-run average cost curve is equal to 10.

a. Is this firm earning economic profit, loss, or zero profit in the short run?

b. Should it alter its output in the short run?

c.) In the long run, what should this firm do?

[To get full credit, produce some graphs or reasoning to explain your answers, not just “yes” or “no”]

4. What does the long run aggregate supply curve look like in a perfectly competitive industry with a pecuniary diseconomy? Explain why it looks this way.

Ch12 problems:

5. A monopolist has a demand curve given by P = 100 – Q and a total cost curve given by TC = 16 + Q2. The associated marginal cost curve is MC = 2Q. Find the monopolist’s profit maximizing quantity and price. How much economic profit will the monopolist earn?

6. Explain first-degree price discrimination. What is the marginal revenue curve of a monopolist with this type of price discrimination facing a demand curve of P = 100 – Q and MC = 0?

7. What effect will the imposition of a 50% tax on a monopolist’s profit have on their price and output decisions?

8. A monopolist’s price is $10. At this price the...