Microeconomics
1.
The above figure represents the average total cost curves of a wheat farmer.
a) Which average total cost curve has the lowest average total cost of producing 30,000 bushels of wheat?
b) Over what range of output is the farmer experiencing economies of scale?
c) Over what range of output is the farmer experiencing diseconomies of scale?
d) Which average total cost curve has the lowest possible average cost of production?
e) Which average total cost curve represents the largest plant?
2. Use the graph below of a perfectly competitive firm's cost functions to answer this set of questions.
a) In the short run, calculate the fixed cost for this firm.
b) Suppose this firm produces 30 units of output. Calculate the variable cost of producing this level of output?
c) Find the break-even price and the shutdown price. What would happen if the market price was equal to $1 per unit?
d) Suppose the market price of the good in the short-run is $8 per unit.
i. Does the firm maximize its profit by producing 10 units? If no, which quantity maximizes the firm's profit. Explain your answer fully.
ii. Do you think that the firm is earning a positive or a negative profit when the market price is $8?
iii. On the graph indicate the area that represents profits (losses).
e) What do you predict will happen in the long-run in this market? Describe the whole process in detail.
3. On the accompanying graph, identify each of the following market outcomes:
a) Short-run equilibrium output (QA) and price (PA) in perfect competition.
b) Long-run equilibrium output (QB), price (PB), and the capacity output level (Q*) in perfect competition.
c) Long-run equilibrium output (QC) and price (PC) in monopoly.
d) Long-run equilibrium output (QE) and price (PE) in monopolistic competition.
e) What is your conclusion about the profit and efficiency of production by comparing the three different market structure.
4. a) Using the following table, find this monopolist’s MR, MC and ATC by using midpoint approach.
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P ($)
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Q
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TR ($)
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MR ($)
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TC ($)
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MC ($)
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ATC ($)
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12
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0
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10
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11
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1
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17
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|
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|
|
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|
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10
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2
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|
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18
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|
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9
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3
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21
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|
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|
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8
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4
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30
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7
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5
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48
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|
b) Plot the demand curve (D), marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC) in one diagram.
c) What is the profit-maximizing level of output. How much profit per unit and in total does the monopolist make?
d) What is the markup? Please show the deadweight loss on the same diagram of (b).
5. Figure 13.7 illustrates the situation facing the publisher of the only newspaper containing local news in an isolated community.
a) On the graph, draw the MR, mark the profit-maximizing quantity, price, mark up and the publisher’s total revenue per day.
b) At the price charged, is the demand for this newspaper elastic or inelastic? Why?
c) Show the consumer surplus, producer surplus, and the deadweight loss created by this newspaper publisher.
d) If the newspaper market is regulated by government to be efficient, what would be the quantity, price, consumer surplus, and producer surplus? Mark each on the graph.
Bonus Assignment (optional)
2 bonus point will be added to the total score of course work if full mark is obtained
1. A product is produced and sold by a monopolistic competitive firm. The graph below shows the demand curve (D), ATC and the marginal cost curve (MC) in the short-run.
A. Draw the MR. What are the profit-maximization output level, price, consumer surplus, producer surplus and deadweight loss?
B. What would be the market price, market output, consumer surplus, producer surplus and deadweight loss if the firm is regulated by government to produce at break-even point?
2. Soapy Inc. and Suddies Inc., the only soap-powder producers, collude and agree to share the market equally. If neither firm cheats, each makes $1 million profit. If one firm cheats, it makes $1.5 million, while the complier incurs a loss of $0.5 million. If both cheat, they break even (profit = 0). Neither firm can monitor the other’s actions.
A. Construct the payoff matrix for this game.
B. Does either firm have a dominant strategy? Explain why.
C. What is/are the Nash equilibrium(a) for this game? Explain.