Question 1 Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 14-1. To maximize its profit, the firm should increase its output. continue to produce 1,000 units. decrease its output but continue to produce. shut down.
Q: Consider the economy of Farland. C = 200 + 0.75(Y – T) I = 200 – 25r M = 1000; P = 2 G = 100;T = 100…
A: C = 200 + 0.75 (Y-T) I = 200 - 25r M = 1000 P=2 G=100 T = 100 M/P = Y-100r
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- Return to Figure 9.2. Suppose P0 is 10 and P1 is 11. Suppose a new firm with the same LRAC curve as the incumbent tries to bleak into the market by selling 4,000 units of output. Estimate from the graph what the new firms average cost of producing output would be. If the incumbent continues. to produce 6,000 units, how much output would the two films supply to the market? Estimate what would happen to the market price as a result of the supply of both the incumbent firm and the new entrant. Approximately how much profit would each firm earn? Figure 9.2 Economics of Scale and Natural MonoployM/c question - Micro 23) When a firm in a competitive market receives $5000 in total revenue, it has a marginal revenue of $100. What is the average revenue, and how many units were sold? A. $100 and 100 units B. $100 and 50 units C. $50 and 50 units D. $50 and 100 units 22) Scenario 14-1 Assume a certain firm is producing 1000 units of output (so Q = 1000). At Q = 1000, the firm’s marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 14-1. At Q = 1000, what is the firm’s profit? A. $1000 B. -$200 C. $3000 D. $4000Table: Demand Schedule of Gadgets Price ofGadget Quantity ofGadgets Demanded $10 0 $9 100 $8 200 $7 300 $6 400 $5 500 $4 600 $3 700 $2 800 $1 900 $0 1,000 Reference: Ref 14-1 Table: Demand Schedule of Gadgets (Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, the market price of gadgets will be: Select one: a. $6. b. $7. c. $4. d. $5.
- 11 8. Suppose an industry produces an undifferentiated product for which market demand is given by X = A- P. There are many potential producers for this product, each of whom has a production function of the form: Fixed costs of F must be paid for being in business, and the marginal cost of a unit of production is a constant k . We imagine that firms decide whether to enter the industry under the supposition that, after all the firms that are going to enter do so, competition will be according to the Cournot model. That is, if N firms are in the market each has Cournot conjectures. An equilibrium is achieved with N firms in the industry if each firm, having its Cournot conjectures, does no worse than break even, whereas if another firm entered and made this an N + 1 firm Cournot oligopoly, all the firms would lose money. What is the equilibrium in this case? What (if anything) would be…Suppose that the firm in a competitive market faces the following revenues and cost: Quantity Total Revenue Total Cost 0 $0 3 1 $7 5 2 14 8 3 21 12 4 28 17 5 35 23 6 42 30 7 49 38 In order to maximize profits, the firm will produce__ a. 6 units of output because marginal revenue equals marginal cost. b. 8 units of output because marginal revenue equals marginal cost. c. 4 units of output because marginal revenue exceeds marginal cost. d. 1 unit of output because marginal cost is maximized.Suppose that over the short run (say the next 5 years), demand for OPEC oil is given by P = 165 – 2.5q. Here q is measured in millions of barrels a day. OPEC marginal cost per barrel is $15. What is OPEC’s optimal level of production? What is the prevailing price of oil at that level? Many experts contend that maximizing short-run profit is counterproductive for OPEC in the long run because high price reduces buyers to conserve energy and spur competition and new exploration that increases the overall supply of oil. Suppose that the demand curve just described will remain unchanged only if oil prices stabilize at $65 per barrel or below. If oil price exceeds this threshold, long run demand (over a second five year-period) will be curtailed to P = 135 – 2.5q. OPEC seeks to maximize its total profit over the next decade. What is the optimum output and price policy? (assume all values are present values)
- urgently need 14. Consider the following setup for a perfectly competitive market: Suppose that for the firm, TC=625+Q^2 and MC=2Q, and for the industry, demand is given by P=100-Q and supply is given by S=Q. However, suppose now that there is an increase in demand, so that demand is given by and for the industry, demand is given by P=500-Q. Will this market outcome be sustainable? That is, do you expect firms to leave the market, enter the market, or neither? a. Firms will enter the market. b. Firms will leave the market. c. Firms will neither enter nor leave the market. d. There could be barriers to entry.A firm’s profit is given by the following function, which maps output q ≥ 0 onto profit (revenue minus cost). π(q) = 11q − (q 2 + 2q + 10) = −q 2 + 9q − 10, The firm is constrained by a quota such that output q cannot be greater than a value Q. (a) What is the domain of this profit function? 1 of 2 ECON10071/20071 - 2020/21 (b) Given this, what is (global) profit maximising output when (i) Q = 6, and when (ii) Q = 2.For a firm with market power, what is the marginal revenue gained when one more unit of output is sold? Question 19Answer a. The price at which the extra unit is sold plus the rise in revenue from selling other units at a higher price b. The price of the unit of output sold minus the production cost of that unit c. The price of the unit of output sold d. The price at which the extra unit is sold less the drop in revenue from selling other units at a lower price
- The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-2 . Let Q represent the quantity of output. Which of the following magnitudes has the same value at Q = 150 and at Q = 151? a. Total revenue b. Average fixed cost c. Total cost d. Average revenue5. The market demand for leather handbags is given by the function P = 75 - 1.5Q. P is priceper handbag, and Q is output per time period.The market supply is given as P = 25 + 0.50Q. A typical competitive firm that markets thistype of bag has a marginal cost of production of MC = 2.5 + 10q. [4]a) Calculate the market equilibrium price for the bags as well as the output rate in themarket.b) Calculate how much the typical firm will produce per time period at the equilibriumprice.c) If all firms had the same cost structure, how many firms would compete at theequilibrium price computed in (a) above?Question 15 (i) Which of the following is(are) correct about how accountants and economists consider costs? Accountants consider only implicit costs Economists consider both explicit and implicit costs A: 1 only B: 2 only C: Both 1 and 2 D: Neither 1 nor 2 (ii) Which of the following statements is(are) correct for a monopoly firm and a competitive firm? Both firms earn economic profit in the long run. Both firms aim to maximize profit and produce at P = MC. A: 1 only B: 2 only C: Both 1 and 2 D: Neither 1 nor 2