wk2 practice questions ans

wk2 practice questions ans - The Colorado College...

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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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This homework help was uploaded on 04/19/2008 for the course EC 207 taught by Professor Ghosh during the Spring '08 term at Colorado College.

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wk2 practice questions ans - The Colorado College...

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