Question 1:
Which types of firms would normally maximize profits along with real-life examples?
Question 2:
Should a firm shut down if its weekly revenue is $2,000, its variable cost is $1,000, and its fixed cost is $1,600, of which $1,200 is avoidable if it shuts down? Why?
Question 3:
A producer of ballpoint pens has been purchasing ink from an ink supplier and is considering acquiring the ink supplier. Would the pen company be more or less likely to vertically integrate by buying the ink manufacturer if the government taxes ink? Please explain.
Question 4:
A firm's revenue function is R(q) = 90q - 2q^2. Its cost function is C(q) = 104 +6q +1.5q^2.
a. Using Excel, calculate the levels of revenue, total cost for the firm for q= 0, 1, 2, 3...24. Determine the profit-maximizing output and the maximum profit for the firm.
b. Using Excel's Charting tool, draw the graph of the profit curve and determine the profit-maximizing level of output.
c. The firm's marginal revenue function is MR = 90-4q and the marginal cost function is MC = 6 +3q. Using Excel, calculate MR and MC for q= 0, 1, 2, 3....24. Verify that the "MR=MC" Rule determines the same profit-maximizing output as you found in part (a).
Question 5:
A large city has nearly 500 restaurants, with new ones entering regularly as the population grows. The city decides to limit the number of restaurant licenses to 500. Which characteristics of this market are consistent with perfect competition and which are not? Is this restaurant market likely to be near perfectly competitive? Why? Are national restaurant franchised chains, perfectly competitive market structures? Restaurants with dress codes, are they considered to be perfectly competitive market structures as well?
Question 6:
BMW of Colorado advertises on the radio that it has been owned and operated by the same family and in the same location for over 30 years. It then makes two claims: first, that is has lower overhead than other nearby auto dealers because it has owned the land for the past 30 years, and second, it charges a lower price for its cars because of its lower overhead. Discuss the logic of these claims.
Question 7:
The "Upward-Sloping Long-Run Supply Curve for Cotton" Mini-Case shows a supply curve for cotton. Discuss the equilibrium if the world demand curve crosses this supply curve in either (a) a flat section labeled Brazil or (b) the following vertical section. What do cotton farmers in the United States do?
Question 8:
In a competitive market, the market demand curve is Q = 28-2p and the market supply curve is Qs = -8 + 2p. Use a spreadsheet to answer the following questions.
a. Determine the quantity demanded and quantity supplied for p = $4, 5, 6..., 14. Determine the equilibrium quantity and price.
| Quantity Demanded |
Quantity Supplied |
Price |
| |
|
4 |
| |
|
5 |
| |
|
6 |
| |
|
7 |
| |
|
8 |
| |
|
9 |
| |
|
10 |
| |
|
11 |
| |
|
12 |
| |
|
13 |
| |
|
14 |
b. For prices p = $4, 5, 6, ...., 14, determine the consumer surplus. How does an increase in price affect the consumer surplus.
c. For prices p = $4, 5, 6, ...., 14, determine the producer surplus. How does an increase in price affect the producer surplus.
d. Suppose the government limits the quantity traded in the market to 6 units. Calculate the resulting deadweight loss.