Microeconomics Answers

Y= 4X1^1/2X2^1/2, factor prices are p1=1, p2=36 and the firm can hire as much of either factor it wants at these prices. The firm's marginal cost is

Compare pure competition and Monopoly in terms of i)No. of firms in industry, ii) Type

of product, iii) control over price, iv) conditions of entry v) Example

Suppose the demand of jeans is given by P=21-5Qd and the supply is given by P=4+2Qs. Calculate the equilibrium quantity.

The rule for profit maximization in all market structures is: MC=MR. Explain why price

can be substituted for MR when an industry is purely competitive?

You operate Balvinder’s Best Broccoli Boutique in Burnaby, BC, in a perfectly competitive environment. You have the following information. You want to decide how much you should produce, and what price you should charge. Complete the chart, and answer the questions below. Use TWO decimals in your answers. HINT: Complete your cost calculations first, and review the lecture notes on the relationship of the MC curve to the ATC and AVC curves. Then, to calculate your revenue values, remember that this is perfect competition…Use this space to show me one of your MC calculations….

Complete the chart above, using TWO decimals in your answers. [16] 2 What is your profit maximizing price? ____________ quantity? _______________ 3 What is your profit? ______________

Explain how peak-load pricing is a form of price discrimination and its effect on the welfare of consumers. Provide a graphical illustration to support your discussion

Suppose that there were 20 people interested in buying good x which has a price of 100 and a 15 th person had a reservation price of 50 what would the demand curve look like

Why are price ceilings said to be inefficient? Can the government restore efficiency by imposing a production quota along with the price ceiling? Who benefits and who loses from such a program? 

a) Explain why cigarette smoking is often described as a good with negative externalities. (3m)

b) Why might a tax on cigarettes induce the market for cigarettes to perform more efficiently? (3m)

c) How would you evaluate a proposal to ban cigarette smoking? Would a ban on smoking necessarily be economically efficient? (4m)

Why is it the case in a long-run monopolistically competitive equilibrium that the firm’s demand curve is tangent to its average cost curve? Why could it not be a long-run equilibrium if the demand curve “cut through” the average cost curve?