Problem 08-01 The graph below summarizes the demand and costs for a firm that op

Question

Problem 08-01

The graph below summarizes the demand and costs for a firm that operates in a perfectly competitive market.
Instruction: Use the nearest whole numbers on the graph when calculating numerical responses below.

a. What level of output should this firm produce in the short run?

units


b. What price should this firm charge in the short run?

$


c. What is the firms total cost at this level of output?

$


d. What is the firms total variable cost at this level of output?

$


e. What is the firms fixed cost at this level of output?

$


f. What is the firms profit if it produces this level of output?

Instruction: If the firm is taking a loss, enter this as negative profits.

$


g. What is the firms profit if it shuts down?

Instruction: If the firm is taking a loss, enter this as negative profits.
$


h. In the long run, should this firm continue to operate or shut down?

Problem 08-02 (Algo)

A firm sells its product in a perfectly competitive market where other firms charge a price of $90 per unit. The firms total costs are C(Q) = 70 + 14Q + 2Q2.

a. How much output should the firm produce in the short run?

units


b. What price should the firm charge in the short run?

$


c. What are the firms short-run profits?

$


d. What adjustments should be anticipated in the long run?

Entry will occur until economic profits shrink to zero.

No firms will enter or exit at these profits.

Exit will occur since these economic profits are too low.

Problem 08-16

You are the manager of College Computers, a manufacturer of customized computers that meet the specifications required by the local university. Over 90 percent of your clientele consists of college students. College Computers is not the only firm that builds computers to meet this universitys specifications; indeed, it competes with many manufacturers online and through traditional retail outlets. To attract its large student clientele, College Computers runs a weekly ad in the student paper advertising its free service after the sale policy in an attempt to differentiate itself from the competition. The weekly demand for computers produced by College Computers is given by Q = 800 2P, and its weekly cost of producing computers is C(Q) = 1,200 + 2Q2.

If other firms in the industry sell PCs at $300, what price and quantity of computers should you produce to maximize your firms profits?

Price: $
Quantity: computers

What long-run adjustments should you anticipate?

Entry by other firms along with increased profits.

Entry by other firms, reducing your profits.

Exit by other firms, increasing your profits.

Exit by other firms along with decreased profits.

The graph below summarizes the demand and costs for a firm that operates in a perfectly competitive market.
Instruction: Use the nearest whole numbers on the graph when calculating numerical responses below.

Explanation / Answer

1) graph is not visible

2) in perfect competition

P = MC

MC = 14 + 4Q ( differentiate cost function)

so.................. 90 = 14 + 4Q

Q = 19

P = 90

profit = P * Q - cost

= 90 * 19 - ( 70 + 14* 19 + 2* 19^2)

= 652

d) Entry will occur until economic profits shrink to zero.

3) P = MC

MC = 4Q

so.....300 = 4Q

Q = 7

P = 300

Entry by other firms along with increased profits.

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