Microeconomics Answers

1) A market has an inverse demand curve and five firms, each of which has a constant marginal cost of If the firms form a profit-maximizing cartel and agree to operate subject to the constraint that each firm will produce the same output level, how much does each firm produce?

2) What is the duopoly Nash-Cournot equilibrium if the market demand function is Q = 4,000 - 400p, and each firm's marginal cost is $0.28 per unit?

Holding the number of firms in the market fixed what happen to the price as the number of non-cartel members rises?why?

1. Lovers of classical music persuade Congress to impose

a price ceiling of $40 per concert ticket. As a result of

this policy, do more or fewer people attend classical

music concerts? Explain.

Fill in the gaps in the table below

Quantity of           Total Output     Marginal Product     Average product of
Variable of input                      Variable input        Variable input
0                        0                   -                  -
1                        225
2                                                               300
3                                           300
4                        1140
5                                           225
6                                                                225

    

Does the marginal utility of x diminish, remain constant, or increase as the consumer buys more x?

A monopolist produces a good that consumers demand according to the function P (Q) = 226 - 1/2Q. The firm's total cost function is TC (Q) = 42Q + 12, 500, with constant marginal cost MC (Q) = 42. Initially, the firm maximizes their profits by charging one price to consumers. The firm will produce output, where each good will be sold for $ units of Later, the firm practices perfect first-degree price discrimination. The firm's new profit-maximizing output level is The firm will earn total revenue equal to $ Compared to the single-price monopolist equilibrium, the amount of DWL in the market will when the monopolist practices perfect first-degree price-discrimination. Choose from: increase, decrease, remain the same. Make sure you are typing in your answer exactly as provided in the answer options. Next

Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:

Price Quantity Demanded (Business travelers) Quantity Demanded (Vacationers)

$150 2,100 tickets 1,000 tickets

200 2,000 800

250 1,900 600

300 1,800 400

a) As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations.

b) Why might vacationers have a different elasticity than business travelers?

The mango float industry currently has 100 firms, each of which has fixed cost of USD 16 and average variable cost as follows:

Quantity                Average Variable Cost

1                              USD 1

2                              2

3                              3

4                              4

5                              5

6                              6

1. Compute a firm’s marginal cost and average total cost for each quantity from 1 to 6.
2. The equilibrium price is currently USD 10. How much does each firm produce? What is the total quantity supplied in the market?
3. In the long run, firms can enter and exit the market, and all entrants have the same costs as above. As this market makes the transition to its long-run equilibrium, will the price rise or fall? Will the quantity demanded rise or fall? Will the quantity supplied by each firm rise or fall? Explain your answers.
4. Graph the long-run supply curve for this market, with specific numbers on the axes as relevant.

7. Suppose that cost function is of a firm is given by C=Q ³ -4Q ² +14Q+60. Then , determine

a. Fixed Cost function and AFC at Q=2

b. TVC function and AVC at Q=2

c. MC function and MC at Q=2

d. Minimum average cost

8. Suppose Q gives the production function Q=150KL and the price of labor and capital is 2.5 and 6 birr respectively. If the total outlays of the firm is 3000 Birr. Determine the level of employment of both inputs that maximizes output.

5. Suppose you have the following production function: Q = f (L, K) = 10L ^½ K ^½ . In addition, the price of labor is $1 and the price of capital is $4

a. What is the optimal amount of labor and capital if you want to produce 20 units?

b. What is the level of minimum cost ?( Ans L=4 and K=1,Min C=$8)

6. Suppose the short run production function can be represented by Q = 60,000L ² – 1000L ³ . Then, determine

a. The level labor employment that maximizes the level of output

b. The level of employment that maximizes AP_L and the maximum AP_L