Econ

DEPARTMENT OF ECONOMICS

ECON211.3 (02)

INTERMEDIATE MICROECONOMIC THEORY

Assignment Four

Due on March 3rd, 2016

Q1.

 The following table contains information for a price taking competitive firm. Complete

the table and determine the profit maximizing level of output (round your answer to the

nearest whole number).

Total Marginal Fixed Average Total

Average Marginal

Output Cost

Cost

Cost Cost

Revenue Revenue Revenue

0

5

0

1

7

10

2

11

20

3

17

30

4

27

40

5

41

50

6

61

60

Q2.

  Conigan Box Company produces cardboard boxes that are sold in bundles of 1000

boxes. The market is highly competitive, with boxes currently selling for $100 per

thousand. Conigan's total and marginal cost curves are:

TC = 3,000,000 + 0.001Q2

MC = 0.002Q

where Q is measured in thousand box bundles per year.

a. Calculate Conigan's profit maximizing quantity. Is the firm earning a profit?

b. Analyze Conigan's position in terms of the shutdown condition. Should Conigan

operate or shut down in the shortrun?

Q3. A competitive firm sells its product at a price of $0.10 per unit. Its total and marginal

cost functions are:

TC = 5 - 0.5Q + 0.001Q2

MC = -0.5 + 0.002Q,

where TC is total cost ($) and Q is output rate (units per time period).

a. Determine the output rate that maximizes profit or minimizes losses in the shortterm.

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b. If input prices increase and cause the cost functions to become

TC = 5 - 0.10Q + 0.002Q2

MC = -0.10 + 0.004Q,

what will the new equilibrium output rate be? Explain what happened to the profit

maximizing output rate when input prices were increased.

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