1
The Colorado College
Department of Economics and Business
Block 7
Econ 207
Practice Question set 2 ans.
1. (a)
c
bQ
aQ
dQ
TC
d
MC
+
+
=
=
2
3
)
(
2
(b) To obtain the level of output for which MC is minimum we set
0
)
(
=
dQ
MC
d
0
2
6
)
(
=
+
=
b
aQ
dQ
MC
d
a
b
a
b
Q
3
6
2
-
=
-
=
(c) The minimum value of MC at this level of output is:
a
b
ac
c
a
b
a
b
c
a
b
b
a
b
a
MC
3
3
3
2
3
)
3
(
2
)
3
(
3
2
2
2
2
min
-
=
+
-
=
+
-
+
-
=
2. (a)
TR = P.Q = 70Q-5Q
2
Q
dQ
TR
d
MR
10
70
)
(
-
=
=
Q
dQ
TC
d
MC
20
10
)
(
+
=
=
(b) The Profit maximizing condition is
MR=MC
Using this we obtain the optimal quantity
70-10Q = 10+20Q
60 = 30Q
Q* = 60/30 =
2
(c) The maximum level of profit (
π
) for the firm is given by
π
=TR – TC
= P.Q – TC
= 2(70-5Q) – [10Q+10Q
2
+10]
= 2(70-10) – [20+40+10]
= 120 – 70
=
50
.
3. (a) We first obtain the MC for Happy Valley Supply Inc.
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2
Q
dQ
TC
d
MC
2
.
0
5
)
(
+
=
=
Now since the firm is perfectly competitive its equilibrium is obtained as P=MC.
55 = 5+0.2Q
0.2Q = 50
Q* = 50/0.2 =
250
.
Profit for Happy Valley Supply Inc. is given as:
π
= TR –TC
= P.Q. – TC
= 55(250) – 4000 - 5(250) – 0.1(250)
2
=
$2250
.

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- Spring '08
- Ghosh
- Economics, Supply And Demand, Happy Valley Supply Inc., Happy Valley Supply
-
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