Econ2200 – Extra Credit, (Perfect Competition)

Econ2200 – Extra Credit, (Perfect Competition)

Subject: Economics    / General Economics
Question
Econ2200 Extra Credit
Question 1 (Perfect Competition)
The data in the tables provide information about the price in dollars for which a firm can sell a unit of output and total
cost of production
A) Fill in the blanks in tables I and II
TABLE I (price $60)
quantity
0
1
2
3
4
5
6
7
8
9
10
11 price
60
60
60
60
60
60
60
60
60
60
60
60 Total cost
100
150
178
198
212
230
250
272
310
355
410
475 MC MR Profit MC MR Profit Table II (price $50)
quantity
0
1
2
3
4
5
6
7
8
9
10
11 price
50
50
50
50
50
50
50
50
50
50
50
50 Total cost
100
150
178
198
212
230
250
272
310
355
410
475 A) What happens to the firm’s output choice (Q*) when the price falls from $60 to $50 B) Complete the tables below as the TFC increases from $100 (in tables I & II) to $150 (in table III) and it rises to $200 in
Table IV, ceteris paribus.
Table III (TFC = $150)
quantity
0
1
2
3
4
5
6
7
8
9
10
11 price
60
60
60
60
60
60
60
60
60
60
60
60 Total cost MC MR Profit Total cost MC MR Profit Table IV (TFC = $200)
quantity
0
1
2
3
4
5
6
7
8
9
10
11 price
60
60
60
60
60
60
60
60
60
60
60
60 D) Describe what happens to the profit maximizing choices of this firm as TFC increases. Question 2 (Monopolies)
3) There is a monopolist of widgets that has the cost function of: C= 100- 5Q + Q2
This creates a marginal cost of: MC = 2Q- 5
Demand is given by the function: P = 55-2Q
Given the above function the Marginal revenue is given by: MR = 55 – 4Q
A)
B)
C)
D) What price should the monopolist set to maximize profit?
What output level will maximize profit for the monopolist?
What is the maximum profit the monopolist earns?
What is the amount of consumer surplus when the monopolist maximizes profit? E) Now suppose that the industry becomes a PERFECTLY COMPETITIVE industry, where P = MC.
F) What is the profit maximizing price and quantity now in the perfectly competitive industry?