Economic: Total Cost

1057 Words Jul 8th, 2012 5 Pages
Review Question #3
Principles of Microeconomics
Spring 2010

1. Your cousin Vinnie owns a painting company with fixed costs of $200 and the schedule for variable costs as below. What is the efficient scale of the painting company? Quantity of Houses Painted per Month | 1 | 2 | 3 | 4 | 5 | 6 | 7 | Variable Costs | $10 | $20 | $40 | $80 | $160 | $320 | $640 |

2. Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. If your aunt thought she could sell $510,000 worth of merchandise in a year, should she open the store?

3. What you give up for taking
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If you were Johnn’s agent, what recording fee would you advise Johnny to demand from the record company?

18. Explain why a monopolist will never produce a quantity at which the demand curve is inelastic.

19. You live in a town with 300 adults and 200 children, and you are thinking about putting on a play to entertain your neighbors and make some money. A play has a fixed cost of $2,000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customer: Price | $10 | 9 | 8 | 7 | 6 | 5 | 4 | 3 | 2 | 1 | 0 | Adults | 0 | 100 | 200 | 300 | 300 | 300 | 300 | 300 | 300 | 300 | 300 | Children | 0 | 0 | 0 | 0 | 0 | 100 | 200 | 200 | 200 | 200 | 200 |
To maximize profit, what price would you charge for an adult ticket and for a child’s ticket? What if price discrimination is not allowed? Calculate the lost incurred by the policy of not allowing price discrimination.

20. A ______ firm faces downward-sloping demand curve. Fill out the blank and explain the statement.

21. A ______ firm has marginal revenue less than price. Fill out the blank and explain the statement.

22. A ______ firm faces the entry of new firms selling similar products. Fill out the blank and explain the statement.

23. A ______ firm earns economic profit in the long run. Fill out the blank and explain the statement.

24. A ______ firm equates marginal revenue and marginal cost. Fill out the blank
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