Assignment:
Problem 1. The Production Process and Cost
You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells at a given output. If w = $40, r = $100, MPL = 20 and MPK = 40 is the firm minimizing cost in the long run? Carefully explain your answer. What is your advice to the firm?
Problem 2. Nature of Industry
Would integration between the following types of firms constitute a horizontal, a vertical, or a conglomerate merger? Explain your answers.
a. A food company and a drug company.
b. A milk producer and a cheese producer.
c. A computer chip manufacturer and a silicon producer.
Problem 3. Perfect Competition, Monopoly, Monopolistic Competition
The graph below illustrates a monopolist in the short run.
a. How many units will this firm produce? How can you tell?
b. What price will this firm charge? How can you tell?
c. What is the maximum amount of profit this firm will earn? How can you tell?
d. Describe some of the barriers to entry that might allow a monopolist to continue to earn positive profits in the long run.