Part 1:
Seafood restaurant in the beach resort town has a fixed (necessary) cost of $1,000 per month and variable (avoidable) costs of another $1,000 for each month. Its total revenues over the six warm months amount to $17,000, so that its profit for this period is $5,000. Its total revenues over other six cold months are only $7,000, but, so that it loses $5,000 over those months and just breaks even over the year as a entire. Wouldn’t the restaurant do better by staying closed out of the season?
Part 2:
Assume a firm’s costs are C(q) = 100 + 10q − 6q2 + 3q3. At what price will it fold up, given that all its fixed costs are sunk?
Part 3:
The inverse market demand curve for the good is p = 100 − 0.25Q. The inverse market supply curve for good is p = 20 + 0.55Q. Compute the equilibrium price and quantity, producer surplus, and consumer surplus.
Part 4:
A market is supplied competitively through 50 low-cost firms, each with cost curve Cl(q) = 350 + 2q + q2, and n high-cost firms, each with cost curve Ch(q) = 400 + 2q + q2. Market demand is Q = 2500 − 10p. If none of high-cost firms makes the positive profit, how large is n? How much profit do low-cost firms make?
Part 5:
Assume the government desires to restrict the number of cars by issuing the limited number of marketable permits to manufacture cars. The inverse market demand curve for the cars is p = 20,000 − 0.9Q, the marginal cost of the manufacturing cars is constant at $4,600, and the marginal pollution and congestion cost of cars is E(Q) = 400 + 0.1Q. What is the socially optimal output of the cars? At what price would marketable allows producing that number of cars trade?