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Ketchup is a complement (as well as a condiment) for burger. If the price of burger rises, what
happens to the market for ketchup? For tomatoes? For tomato juice? For orange juice?
1.What three decisions are made by profit maximizing firms?
2.Differentiate profits from economic costs.
3.What is the most important opportunity cost included in economic costs?
4.Differentiate long run and short run decisions made by firms.
5.Differentiate production process from production function; marginal product and the law of diminishing returns; fixed costs and variable costs.
6.How does the firm goes about determining how much output to produce?
Write down the functional form for quantity demanded of a particular good. Create a demand
equation, prepare a schedule and draw a graph accordingly.
explain how income and price of related goods can affect the quantity demanded of a good using graph and example
If the minimum point of the short run ATC curve for all firms (existing and potential) is also the minimum point of the long run average cost curve (LRAC), calculate the long-run equilibrium price, market quantity, and firm quantity. What is the long-run equilibrium number of firms in the industry?
Consider a firm’s profit function, p(x)=R(x) - C(x), where R(x) is total revenue as a function is output (x), and C(x) is total cost as a function of output (x).
1/ Under perfect competition, each firm is a price taker. Assuming a competitive market price , p* = 10 and a cost function, C(x) = (x-5)^2 , express the firm’s profit as a function of x.
2/ Find the competitive firm’s profit maximizing level of output, x*.
3/ If the firm we’re only interested in minimizing costs, what level of output would it choose?
Suppose the demand for cigarettes is Q = 15 - 0.5Pand the supply of cigarettes is Q = P - 3, where P is the price per pack of cigarettes. Suppose the government imposes a cigarette tax of $3 per pack.
(a) What is the price paid by producers?
(b) What is the price faced by consumers?
(c) What is the government revenue from the tax?
(d) What is the total dollar amount of tax revenue that is ultimately paid by consumers (i.e. consumers' tax burden)?
(e) What is the excess burden of the tax?
Billy Madison consumes 100 units of X and 50 units of Y. The price of x rises from 2 to 3. The price of Y remains at 4.
a/ how much must Billy’s income rise so that he can exactly afford 100 units of x and 50 units of y?
b/ Draw Billy’s original budget set when the price of X is 2
c/ Draw Billy’s budget set when the price of X is 3, but his income is unchanged
d/ Draw Billy’s budget set when the price of X is 3 and his income increases by the amount in (a) so that he can afford his original consumption bundle.
Consider a firm’s profit function, p(x)=R(x) - C(x), where R(x) is total revenue as a function is output (x), and C(x) is total cost as a function of output (x).
1/ Under perfect competition, each firm is a price taker. Assuming a competitive market price , p* = 10 and a cost function, C(x) = (x-5)^2 , express the firm’s profit as a function of x.
2/ Find the competitive firm’s profit maximizing level of output, x*.
3/ If the firm we’re only interested in minimizing costs, what level of output would it choose?
Suppose a firm operating in a perfectly competitive industry has costs in the short run given by:
SRTC = 8 + 1/2Q^2 and therefore MC = q.
if the minimum point of the short-run ATC curve for all firms(existing and potential)is also the minimum point of the long run average cost curve (LRAC), calculate the long-run equilibrium price, market quantity, and firm quantity. What is the long-run equilibrium number of firms in the industry?
