Problem Set 5

# Problem Set 5 - MMSS 211-1 Problem Set 5 Fall 2014 1 A...

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MMSS 211-1 Problem Set 5 Fall 2014 1. A firm’s TR curve is given by TR = bQ – 3Q 2 . Is this a perfectly competitive firm? Explain why or why not. 2. If the SR MC and AVC curves of a competitive firm are given by MC = 2 + 4Q and AVC = 2 + 2Q, how many units will the firm produce at a market price of 14? At what level of FC will this firm earn zero economic profit? 3. Illustrate the shutdown rule (i.e., assume the firm is making a loss) graphically by showing its profit if it shuts down or stays open in a diagram with MC, AVC, ATC curves. 4. A firm in a competitive industry has a TC function of TC = Q 2 – 30Q + 200. If the firm faces a price of 50, what quantity will it sell? What profit does the firm make at this price? Should the firm shut down? 5. Julia is like other managers in a perfectly competitive industry except that due to her great personality, people are willing to work for her for half the going wage rate. The other firms in the industry have SRTC curves given by TC = I + 20Q + wQ 2 where I is the salary paid to the ordinary managers and w is the wage rate for the industry.

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