HW1_Solutions

HW1_Solutions - Homework 1 - Solutions Evrim Dener Eco 4382...

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Homework 1 - Solutions Evrim Dener Eco 4382 - Fall 2007 1) (a) Q=53-P Inverse demand P=53-Q TR=PQ TR=(53-Q)Q MR=dTR/dQ=53-2Q MR=MC 53-2Q=5 Q*=24, P*=53-Q*=29 *=(P*-AC)Q*=(29-5)24=576 (b) P=MC 53-Q=5 Q*=48 (c) (d) CS shrank from ADF to ABC PS increased by BCDE DWL is CEF 1
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2) 2.8) (a) Total Revenue is given by p( Q ) . Q , that is, the revenue that Las-O-Vision receives when it sells Q units. To get p( Q ), we invert the demand function Q = 10,200 - lOOp by solving for p in terms of Q , or p ( Q ) = 102 Q= 100 : Substituting this into our total revenue equation, we obtain TR ( Q ) = (102 Q= 100) Q = 102 Q Q 2 = 100 : (b) Marginal revenue is the derivative of Total Revenue with respect to Q , so MR ( Q ) = 102- Q /50; or, since our demand equation is linear in Q , we can obtain it by recalling that the marginal revenue curve is twice as steep as the inverse demand curve and starts at the same point on the vertical axis. Q * is that quantity at which marginal cost and marginal revenue are equal. Setting MR( Q ) = MC ,we have 102 - Q */50 = Q *, or
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HW1_Solutions - Homework 1 - Solutions Evrim Dener Eco 4382...

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