This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Chapter 22 Practice Quiz Answers D. Gollin November 24, 2004 22.1 Suppose that Dent Carr’s longrun total cost of repairing s cars per week is ( 29 2 3 192 c s s = + . If the price he receives for repairing a car is 36, then in the long run, how many cars will he fix per week if he maximizes profits? Longrun profit maximization occurs when the firm produces a quantity such that the price equals the (longrun) marginal cost. The LRMC here is 6 s , so profitmaximization would occur where s = 6. But at this point, his profits will be negative: ( 29 ( 29 ( 29 2 36 6 3 6 192 216 108 192 84 = =  . In the long run, he will not operate with negative profits, so instead, his profitmaximizing longrun production is zero! 22.2 Suppose that Irma’s production function is ( 29 { } ( 29 1 2 1 2 1 2 , min , 2 f x x x x = . If the price of factor 1 is w 1 = 6 and the price of factor 2 is w 2 = 4, then what is her supply function? Given her production function, her cost curve is given by ( 29 2 1 2 0.5 w w y + . The marginal cost will be ( 29 1 2 2 0.5 16 y w w y + = . Since she will choose y to make the marginal cost equal price, her supply function will be given by 16 y p = . 22.3 A firm has the longrun cost function ( 29 2 2 8 C q q = + . In the long run, it will supply a positive amount of output, so long as the price is greater than what level?...
View
Full
Document
This note was uploaded on 05/02/2008 for the course ECON 150 taught by Professor Eduardofaingold during the Fall '08 term at Yale.
 Fall '08
 EduardoFaingold
 Microeconomics

Click to edit the document details