Microeconomics – Quantity Fixed Costs Variable Costs

Microeconomics – Quantity Fixed Costs Variable Costs

Subject: Economics    / General Economics
Question

Microeconomics

1.

Quantity Fixed Costs Variable Costs Total Costs

0 $300 $0 $300

1 $300 $100 $400

2 $300 $150 $450

3 $300 $210 $510

4 $300 $292 $592

5 $300 $400 $700

6 $300 $540 $840

7 $300 $721 $1,021

8 $300 $952 $1,252

Calculate Average Fixed Costs, Average Variable Costs, Average Total Cost, Marginal Cost (5 pts)

Refer to the above table.

a) If the market price for the firm’s product is $60, will the firm produce? If so, what quantity will the firm produce and what is the profit or loss (2 pts each)

b) Answer the above question if the price is $82.00

c) Answer the above question if the price is $181.00

Now assume there are 100 identical firms in this industry, each of which has the same cost data as the single firm described above. Suppose too that the demand curve for this industry is as shown below:

Price Qd

60 1100

82 1000

181 700

d) What is the equilibrium price for this product

e) What is the equilibrium quantity for this product

f) What is the per unit profit or loss?

g) What is the total profit or loss?

h) Will this industry expand or contract.

i) What will be the price of the product when the industry is finished expanding or contracting?

2. Assume Color Tattoos become more fashionable and it is a purely competitive industry discuss how long run equilibrium is

achieved in the market. (5 points)

3. The Campus Crustacean Company receives $3,200.00 for its crawfish from selling 1,600 boxes to maximize its profits. What is the total profit of crawfish at this equilibrium level of output if Total Variable Costs are $1,600.00 and Total Fixed Costs are $1,200? (5 pts)

4. The data below relate to a pure monopolist and the product it produces. (10 pts)

a) What is the profit-maximizing output and price for this monopolist?

b) What is the profit-maximizing output and price for a competitor?

(TR=Total Revenue; MR=Marginal Revenue)

Price Q TR MR TC MC

22 0 0 20

20 1 20 20 24 4

18 2 36 16 27 3

16 3 48 12 32 5

14 4 56 8 40 8

12 5 60 4 49 9

10 6 60 0 59 10

5. Why must a monopolist that is price discriminating take steps to prohibit resale? (8 pts)

6. Give 2 reasons why the MR curve of a pure monopoly is downward sloping. (8 pts)

7. What is that portion of the Marginal Cost curve that lies above the Average Variable Cost called? (8 pts)

8. The following is a total product schedule for a resource. Assume that the quantities of other resources the firm employs remain constant

Units of Resource TP

0

1 24

2 42

3 54

4 64

5 72

Refer to the above table – (10 Points)

a) Given that the price of the product is $2.00 per unit, calculate Marginal Product (MP) and Marginal Revenue Product (MRP).

b) What the marginal revenue product of the third unit of the resource

c) If the firm’s product sells for a constant $2 and the price of the resource is a constant $16, how many units of the resource will the firm will employ?

9. Assume that a purely competitive firm uses two resources, labor (L) and capital (C), to produce a certain product. In which situation would the firm be maximizing profit? (5 pts)

10. Why are the AVC, ATC, MC all “U” shaped? (10 pts)