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Practice_Problems_07

Course: ECON 1110, Fall 2008
School: Cornell
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Word Count: 291

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D)Thisisonebasicdefinitionofthedifference. Notes07:AnswerstoPracticeProblems E)Whenapricesearcherchoosesatoproduceagivenquantity,itiswhereP>MR. Nochart. C)PeggySueisapricetakersoshesetsMR=MC=0sinceMC=0isapropertyofthis magicalwell. 5. A)Cheatingbyfirmsinthecartelisalwaysasourceofinstability.Itisdifficultforthe colludingfirmstoverifythatnooneisproducingabovetheagreeduponquantity. Havingasmallnumberoffirmsinthecartelmakescooperationeasier,notharder. 6. C)Thisimpliesanyfirmcouldprofitbyproducingalittlemore. 7. C)ThepricetakerproduceswhereMC=MV,namely6unitsatapriceof$14.The producersurpluscomesfromaddingupthesurplusforeachunitforatotalof$15: Unit 1 2 3 4 5 6 MC $9 $10 $11 $12 $13 $14 MV $24 $22 $20 $18 $16 $14 PS $5 $4 $3 $2 $1 $ 1. 2. 3. 4. 8. E)Theequilibriumquantityis2units,resultinginanewproducersurplusof$1.Thusthe 9. deadweightlossis$14=151. B)Theequilibriumquantitywillbe4units,atapriceof$18,withaconsumersurplusof $12.Thechartgivesthetaxadjusteddata: Unit 1 2 3 4 MC $15 $16 $17 $18 MV $24 $22 $20 $18 CS $6 $4 $2 $ 10. E)Theequilibriumpriceis$20withproducersurplusof$13. Unit MC MV TR MR PS 1 $15 $24 $24 $24 $9 2 $16 $22 $44 $20 $4 3 $17 $20 $60 $16 1 11. D)Marginalcostisalwayspositivesocostsalwaysdecreasesinceraisingpriceinvolves loweringquantity. 12. D)Thisisanotherwayoflookingatthedefinitionoftheelasticityofdemand. 13. C)Pricetakerscanchargeeachconsumerhisorhermarginalvalueandcaptureallthe gainsfromtrade. 14. B)Highfixedcostsdeterentrants,andlowmarginalcostsencouragefirmstobevery large. 15. D)Inanaturalmonopolywithoutgovernmentintervention,themonopolyisaprice searcherwhomaximizesprofitswhereMC=MR.

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