# Micro Final

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question
A purely competitive firm finds that the market price for its product is \$20. It has a fixed cost of \$100 and a variable cost of \$10 per unit for the first 50 units and then \$25 per unit for all successive units. a. Does price equal or exceed average variable cost for the first 50 units? What about for the first 100 units? b. What is the marginal cost per unit for the first 50 units? What is the marginal cost for units 51 and higher? c. For each of the first 50 units, does MR exceed MC? What about for units 51 and higher? d. What output level will yield the largest possible profit for this purely competitive firm?
a. Yes and Yes b. \$10 per unit for first 50 and \$25 per unit for 51 and higher c. Yes for first 50 and MR
question
Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently \$1 per poster. She has fixed costs of \$250. Her variable costs are \$1000 for the first thousand posters, \$800 for the second thousand, and then \$750 for each additional thousand posters. a. What is her AFC per poster (not per thousand!) if she prints 1000 posters? What if she prints 2000 posters? What if she prints 10000 posters? b. What is her ATC per poster if she prints 1000? What if she prints 2000? What if she prints 10000? c. If the market price fell to 70 cents per poster, would there be any output level at which Karen would not shut down production immediately?
a. \$0.250 for 1000, \$0.125 for 2000, \$0.025 for 10000 b. \$1.250 for 1000, \$1.025 for 2000, \$0.805 for 10000 c. No
question
Assume the following cost data for a purely competitive producer: a. At a product price of \$56: Will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic profit or loss will the firm realize per unit of output? b. At a product price of \$41: Will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic profit or loss will the firm realize per unit of output? c. At a product price of \$32: Will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic profit or loss will the firm realize per unit of output? d. In the table below, complete the short-run supply schedule for the firm and indicate the profit or loss incurred at each output. e. Now assume that there are 1500 identical firms in this competitive industry; that is, there are 1500 firms, each of which has the cost data shown in the table. Complete the industry supply schedule (column 4 in table above). f. Suppose the market demand data for the product is as follows: What will be the equilibrium price? What will be the equilibrium output for the industry? For each firm? What will profit or loss be per unit? per firm? Will this industry expand or contract in the long run?
a. Yes, Profit-maximizing at output of 8 units per firm, Profit \$7 per unit b. Yes, Loss-minimizing at output of 6 units per firm, Loss of \$6.50 per unit c. No, N/A at output 0 units per firm, Total loss = \$60 d. (from top to bottom) (2) Quantity Supplied, Single Firm - 0, 0, 5, 6, 7, 8, 9 (3) Profit (+) or Loss (-) - -60, -60, -55, -39, -8, 63, 144 e. (4) Quantity Supplied, 1500 Firms - 0, 0, 7500, 9000, 10500, 12000, 13500 f. Equilibrium price = \$46 Equilibrium output = 10500 for industry, 7 per firm Loss per unit = \$1.14 for industry, \$7.98 per firm The industry will contract
question
A firm in a purely competitive industry is currently producing 1,000 units per day at a total cost of \$450. If the firm produced 800 units per day, its total cost would be \$300, and if it produced 500 units per day, its total cost would be \$275. a. What are the firm's ATC per unit at these three levels of production? At 1,000 units per day? At 800 units per day? At 500 units per day? b. If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? c. From what you know about these firms' cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? d. If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm's accounting profit per unit be?
a. 1000: ATC=\$0.45 800: ATC=\$0.38 500: ATC=\$0.55 b. No c. \$0.38 d. 3.8 cents per unit
question
Suppose a pure monopolist is faced with the cost data shown in the table on the left and the demand schedule shown on the right. a. Calculate the missing total-revenue and marginal-revenue amounts b. What is the profit-maximizing price? What is the profit-maximizing output for this monopolist? c. What is the monopolist's profit?
a. (from top to bottom) Total-Revenue: 0, 100, 166, 213, 252, 275, 288, 294, 297, 296, 290 Marginal-Revenue: -, 100, 66, 47, 39 ,23, 13, 6, 2, 1, -7 b. \$63, 4 units c. \$42
question
Suppose that a price-discriminating monopolist has segregated its market into two groups of buyers as shown in the table below. a. Calculate the missing total-revenue and marginal-revenue amounts for Group 1. b. Assume that MC is \$13 in both markets and MC = ATC at all output levels. What price will the firm charge in each market? c. Based solely on these two prices, which market has the higher price elasticity of demand? d. What will be this monopolist's total economic profit?
a. (from top to bottom) Total-Revenue: 0, 100, 166, 213, 252, 275, 288, 294, 297, 296, 290 Marginal-Revenue: -, 100, 66, 47, 39 ,23, 13, 6, 2, 1, -7 b. Group 1: 6 units at a price of \$48 Group 2: 6 units at a price of \$33 c. The second market has the higher price elasticity of demand d. \$330
question
A new production technology for making vitamins is invented by a college professor who decides not to patent it. Thus, it is available for anybody to copy and put into use. The TC per bottle for production up to 100,000 bottles per day is given in the following table. a. What is ATC for each level of output listed in the table? b. Suppose that for each 25,000-bottle-per-day increase in production above 100,000 bottles per day, TC increases by \$5,000 (so that, for instance, 125,000 bottles per day would generate total costs of \$85,000 and 150,000 bottles per day would generate total costs of \$90,000). Is this a decreasing-cost industry? c. Suppose that the price of a bottle of vitamins is \$1.33 and that at that price the total quantity demanded by consumers is 75,000,000 bottles. How many firms will there be in this industry? d. Suppose that, instead, the market quantity demanded at a price of \$1.33 is only 75,000. How many firms do you expect there to be in this industry? e. Review your answers to parts b, c, and d. Does the level of demand determine this industry's market structure?
a. (from top to bottom) ATC: 2, 1.40, 1, 0.80 b. Yes c. One firm d. One firm e. No
question
Suppose that a monopolistically competitive restaurant is currently serving 230 meals per day (the output where MR = MC). At that output level, ATC per meal is \$10 and consumers are willing to pay \$12 per meal. a. What is the size of this firm's profit or loss? b. Will there be entry or exit? c. Assume that the allocatively efficient output level in long-run equilibrium is 200 meals. In long-run equilibrium, suppose that this restaurant charges \$11 per meal for 180 meals and that the marginal cost of the 180th meal is \$8. What is the size of the firm's profit? d. Suppose that the allocatively efficient output level in long-run equilibrium is 200 meals. In long-run equilibrium, suppose that this restaurant charges \$11 per meal for 180 meals and that the marginal cost of the 180th meal is \$8. Is the deadweight loss for this firm greater than or less than \$60?
a. \$460 b. Entry c. \$0 d. Less than
question
A delivery company is considering adding another vehicle to its delivery fleet; each vehicle is rented for \$100 per day. Assume that the additional vehicle would be capable of delivering 1,500 packages per day and that each package that is delivered brings in ten cents in revenue. Also assume that adding the delivery vehicle would not affect any other costs. a. What are the MRP and MRC? b. Now suppose that the cost of renting a vehicle doubles to \$200 per day. What are the MRP and MRC? Should the firm add a delivery vehicle under these circumstances? c. Next suppose that the cost of renting a vehicle falls back down to \$100 per day but, due to extremely congested freeways, an additional vehicle would only be able to deliver 750 packages per day. What are the MRP and MRC in this situation? Would adding a vehicle under these circumstances increase the firm's profits?
a. MRP=\$150 MRC=\$100 b. MRP=\$150 MRC=\$200 No c. MRP=\$75 MRC=\$100 No
question
Suppose that a monopoly firm finds that its MR is \$50 for the first unit sold each day, \$49 for the second unit sold each day, \$48 for the third unit sold each day, and so on. Further suppose that the first worker hired produces 5 units per day, the second 4 units per day, the third 3 units per day, and so on. a. What is the firm's MRP for each of the first five workers? b. Suppose that the monopolist is subjected to rate regulation and the regulator stipulates that it must charge exactly \$40 per unit for all units sold. At that price, what is the firm's MRP for each of the first five workers? c. If the daily wage paid to workers is \$170 per day, how many workers will the unregulated monopoly demand? If the daily wage paid to workers is \$170 per day, how many workers will the regulated monopoly demand? Looking at those figures, will the regulated or the unregulated monopoly demand more workers at that wage? d. If the daily wage paid to workers falls to \$77 per day, how many workers will the unregulated monopoly demand? If the daily wage paid to workers falls to \$77 per day, how many workers will the regulated monopoly demand? Looking at those figures, will the regulated or the unregulated monopoly demand more workers at that wage? e. Comparing your answers to parts c and d, does regulating a monopoly's output price always increase its demand for resources?
a. (from top to bottom) MRP, Unregulated: 240, 174, 120, 75, 36 b. (from top to bottom) MRP, Regulated: 200, 160, 120, 80, 40 c. 2 workers 1 worker Unregulated monopoly d. 3 workers 4 workers Regulated monopoly e. No
question
Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm's capacity. If he adds one more worker, the firm's total monthly revenue will increase from \$50,000 to \$58,000. If he adds one more tractor, monthly revenue will increase from \$50,000 to \$62,000. Each additional worker costs \$4,000 per month, while an additional tractor would also cost \$4,000 per month. a. What is the marginal revenue product of labor? The marginal revenue product of capital? b. What is the ratio of the marginal revenue product of labor to the price of labor (MRPL/PL)? What is the ratio of the marginal revenue product of capital to the price of capital (MRPK/PK)? c. Is the firm using the least-costly combination of inputs? d. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent?