1. You are operating a firm in a perfectly competitive market. In the short run,
ID: 1103223 • Letter: 1
Question
1. You are operating a firm in a perfectly competitive market. In the short run, you have fixed costs of $30. Your variable costs are given in the following table:
Complete the following table:
2.
A monopolist faces a demand curve given by
P = 70 – 2Q
where P is the price of the good and Q is the quantity demanded.
The marginal cost of production is constant and is equal to $6. There are no fixed costs of production.
Hint: To answer the following questions, it may be helpful to draw a graph!
What quantity should the monopolist produce in order to maximize profit?
What price should the monopolist charge in order to maximize profit?
How much profit will the monopolist make?
What is the deadweight loss created by this monopoly? (Hint: compare the monopoly outcome with the perfectly competitive outcome).
Monopoly deadweight loss =
If the market were perfectly competitive, what quantity would be produced?
3.
Which of the following statements regarding perfect price discrimination is false?
4. Which of the following is NOT a necessary condition for price discrimination?
having a constant marginal cost
5.
Suppose a competitive firm can sell its output for $9 per unit. The following table gives the firm’s short run production function.
Labor
Output
0
0
1
8
2
20
3
35
4
44
5
51
6
54
In the table below, you will determine several points on the firm’s demand curve for labor. To do this, you must determine how many workers the firm should hire for different values of the wage rate in order to maximize profit. Complete the table below:
Quantity Demanded of Workers
$25
$60
$75
$90
Q TVC 0 0 1 100 2 175 3 225 4 305 5 415Explanation / Answer
Answer:
To find profit maximizing level, we should have the difference between Total cost and total revenue maximum.
We know that Total cost = Total variable cost + total fixed cost
Total revenue = Unit sold * price per unit and in perfect compeition
Lets first findout Total cost at each level of unit as follows:
Q
TVC
Fixed Cost
Total Cost
0
0
30
30
1
100
30
130
2
175
30
205
3
225
30
255
4
305
30
335
5
415
30
445
Now we have total cost at different level of output. Next we have to find Total Revenue at each price level given at each unit level: The Bold values are total revenue at each corresponding price and quantity level
Quantity of output
Price per unit(downward)
0units
1units
2units
3units
4units
5units
$70
$0
$70
$140
$210
$280
$350
$77
$0
$77
$154
$231
$308
$385
$85
$0
$85
$170
$255
$340
$425
$105
$0
$105
$210
$315
$420
$525
Now we can compare and make difference between Total reveunue and total cost at each price level for given output.
IN the given table, bracket values infron of total revenue are difference between total revenue and total cost for ecah corresponding price level and quantity level:
Quantity of output
Price per unit
0
1
2
3
4
5
$70
0(-30)
70(-60)
140(-65)
210(-45)
280(-55)
350(-95)
$77
0(-30)
77(-67)
154(-51)
231(-24)
308(-27)
385(-60)
$85
0(-30)
85(-45)
170(-35)
255(0)
340(5)
425(-20)
$105
0(-30)
105(-25)
210(5)
315(60)
420(85)
525(80)
Thus the given table can be filled as:
Market Price
Profit max level of output
Profit
$70
0
-30
$77
3
-24
$85
4
5
$105
4
85
Q
TVC
Fixed Cost
Total Cost
0
0
30
30
1
100
30
130
2
175
30
205
3
225
30
255
4
305
30
335
5
415
30
445
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