ASISTENSI

 MIKRO  1   CH.8   Margaretha  Silia  K.  Herin  

 
1 Suppose   you   are   the   manager   of   a   watchmaking   firm   produced   in   this   market?   What   are   the   profits  
operating   in   a   competitive   market.   Your   cost   of   earned  by  a  typical  firm?  Show  your  work.    
production  is  given  by  C=200+2q2,  where  q  is  the  level  of   d. Suppose   now   that   the   market   curve   shifts  
output  and  C  is  total  cost.   outwards.   In   particular,   the   equation   of   the   new  
a. If  the  price  of  watches  is  $100,  how  many  watches   market   demand   curve   is    𝑄𝐷(𝑝)   =   600   −   4𝑝  
should  you  produce  to  maximize  profit?    Assuming   that   the   number   of   firms   remains   fixed  
b. Calculate  the  profit!   (in   the   short-­‐run)   at   the   value   determined   in   part  
c. At  what  minimum  price  will  the  firm  produce  a   (c),  compute  the  new  equilibrium  price.  How  much  
positive  output?   output   does   a   typical   firm   produce?   What   is   the  
total   amount   of   output   produced   in   the   market?  
2. A  firm  produces  a  product  in  a  competitive  industry  and   What  are  the  profits  earned  by  a  typical  firm?    
has   a   total   cost   function   C   =   50   +   4q   +   2q2.   At   the   given   e. After  the  shift  in  the  market  demand  curve,  what  is  
market   price   of   $20,   the   firm   is   producing   5   units   of   the   new   long-­‐run   equilibrium   number   of   firms   in  
output.   Is   the   firm   maximizing   profit?   What   quantity   of   this   industry?   How   many   new   firms   enter   the  
output  should  the  firm  produce  in  the  long  run?     industry  as  a  result  of  the  increase  in  demand?    
 
3. Suppose   that   a   competitive   firm’s   marginal   cost   of   7. Suppose   a   firm   in   a   perfectly   competitive   industry   has   a  
producing  output  q  is  given  by  MC(q)=3+2q.  Assume  that   cost  function  of  𝐶(𝑞)  =  4𝑞2+  16
the  market  price  of  the  form’s  product  is  $9.   a. Write   down   the   firm’s   fixed   cost,   variable   cost,  
a. What  level  of  output  will  the  firm  produce?   average  cost,  and  marginal  cost  as  functions    of  𝑞!    
b. What  is  the  firm’s  producer  surplus?   b. Find  the  output  that  minimizes  average  cost!    
c. Suppose  that  the  AVC=3+q  and  the  firm’s  FC  is  $3,   c. What   is   the   price   at   which   the   firm   will   choose   to  
will  the  form  be  earning  a  positive,  negative,  or  zero   produce  zero  output?  What  is  the  price  at  which  the  
profit  in  the  short  run?   firm  makes  zero  profit?  
   
4. Suppose   that   a   form’s   productioN   function   is   q=9x0.5   in   8. Suppose  you  are  given  the  following  information  about  a  
the  short  run,  where  there  are  fixed  costs  of  $1000,  and  x   particular  industry:  
is  the  variable  input  whose  cost  is  $4000  per  unit.      
𝑄D =  6500  −  100𝑃  ;    𝑄S=  1200𝑃  
a. What   is   the   total   cost   of   producing   a   level   of   output   𝐶(𝑞)=722+  (𝑞2  /200)  ; 𝑀𝐶(𝑞)  =  (2𝑞/200)
q?  Identify  the  total  cost  function!     Assume  that  all  firms  are  identical,  and  that  the  market  is  
b. Write  down  the  equation  for  the  supply  curve!   characterized  by  perfect  competition.
c. If   price   is   $1000,   how   many   units   will   the   firm   a. Find  the  equilibrium  price,  the  equilibrium  quantity,  
produce?  What  is  the  level  of  profit?   the  output  supplied  by  the  firm,  and  the  profit  of  
each  firm.    
5. A   sales   tax   of   $1   per   unit   of   output   is   placed   on   one   b. Would  you  expect  to  see  entry  into  or  exit  from  the  
particular   firm   whose   products’   price   is   $5   in   a   industry  in  the  long  run?  Explain.  What  effect  will  
competitive   industry.   How   will   this   tac   affect   the   cost   entry  or  exit  have  on  market  equilibrium?    
curve  for  the  firm?  What  will  happen  to  the  firm’s  price,   c. What  is  the  lowest  price  at  which  each  firm  would  sell  
output,   and   profit?   will   there   be   entry   or   exit   in   the   its  output  in  the  long  run?  Is  profit  positive,  negative,  
industry?     or  zero  at  this  price?  Explain    
  d. What  is  the  lowest  price  at  which  each  firm  would  sell  
6. Consider   a   competitive   industry   consisting   of   a   large   its  output  in  the  short  run?  Is  profit  positive,  negative,  
number  of  identical  price-­‐taking  firms,  each  of  which  has   or  zero  at  this  price?  Explain.    
the  long-­‐run  cost  function:  
 
𝑐(𝑦)  =  𝑦2 +  4  if  𝑦  >  0   9. (Multiple  choice)  
𝑐(𝑦)  =  0  if  𝑦  =  0 The   widget   industry   is   perfectly   competitive.   Two  
where   𝑦   is   the   output   of   a   typical   firm.   Note   that   each   different   technologies   of   production   exist.   These  
firm   faces   quasi-­‐fixed   costs   equal   to   4.   The   market   technologies  exhibit  the  following  total  cost  functions:  
demand   curve   in   this   industry   is   described   by   the      
𝑇𝐶1(𝑞)  =  1000  +  600𝑞  −  40𝑞2 +  𝑞3
equation: 𝑄D(𝑝)   =   400   −   4𝑝,   where   𝑄D(𝑝)   is   the    
𝑇𝐶2(𝑞)  =  200  +  145𝑞  −  10𝑞2 +  𝑞3  
quantity  demanded  when  the  market  price  is  𝑝.    
a. Derive  the  equation  of  the  supply  curve  of  a  typical   Due  to  international  competition,  the  market  price  of  
firm   (i.e.   express   the   optimal   output   of   a   typical   widgets  has  fallen  to  £190  per  unit.  In  the  short  run:  
firm  as  a  function  of  the  price  𝑝).   a. Firms  using  technology  1  and  firms  using  technology  
b. Suppose  that  there  are  𝑁   firms  in  the  industry.  Use   2  will  remain  in  business    
your  answer  from  part  (a)  to  derive  the  equation  of   b. Firms  using  technology  1  will  remain  in  business  
the   industry   supply   curve   (i.e.   express   total   industry   and  firms  using  technology  2  will  shut  down    
supply  as  a  function  of  𝑁  and  𝑝)     c. Firms  using  technology  1  will  shut  down  and  firms  
c. Determine   the   long-­‐run   equilibrium   number   of   using  technology  2  will  remain  in  business    
firms  in  this  industry.  What  is  the  equilibrium  price   d. Firms  using  technology  1  and  firms  using  technology  
of  the  good?  How  much  output  does  a  typical  firm   2  will  shut  down    
produce?   What   is   the   total   amount   of   output   e. More  information  is  needed  to  make  a  judgment