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Unformatted text preview: Econ 1 Winter 2008 Dr. Narag 1 Homework 5
(1) You are hired as a consultant to a firm in a perfectly competitive market that sells tennis
racquets at a market price of $35. The firm's cost schedule is as follows: The profit maximizing level of output is 6, where MR=MC (2) Firm ABC is a price taker. It has the following hourly costs: Output (Q per hour) 0 1 2 3 4 5 6 a) Total Cost (dollars per hour) $10 21 30 41 54 69 86 If Q sells for $15, what is ABC's profitmaximizing output per hour? What is his profit? Your answer must include graphical as well as numerical solutions. You must show the total and marginal graphical solutions. P 15 15 15 15 15 15 15 TR 0 15 30 45 60 75 90 TC 10 21 30 41 54 69 86 Total Econ. Profit or Loss 10 6 0 4 6 6 4 MR 15 15 15 15 15 15 15 MC 11 9 11 13 15 17 ATC 21 15 13.6 13.5 13.8 14.3 Q 0 1 2 3 4 5 6 Econ 1 Winter 2008 Dr. Narag Per Unit Profit = 15.00 13.80 = 1.20 Total Profit = 1.20 X 5 output = $6.00
b) 2 If Q sold for $11 instead of $15, what quantity of Q would ABC offer for sale? Explain thoroughly with graphical as well as numerical solutions. c) What is ABC's supply curve? Explain and show this graphically. Econ 1 Winter 2008 Dr. Narag 3 d) What price will cause ABC to leave this industry? What price will cause other firms with costs identical to ABC to enter the industry? ABC leaves if P < min. AVC or < $10 Other firms enter if P > min. ATC or P > $13.50 e) What is the longrun equilibrium price of Q? Explain graphically and verbally. Econ 1 Winter 2008 Dr. Narag 4 ...
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This homework help was uploaded on 04/16/2008 for the course ECON 1 taught by Professor Nagata during the Winter '08 term at UCLA.
 Winter '08
 Nagata

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