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MBAC6010-practice questions-031008

MBAC6010-practice questions-031008 - MBAC6010 Managerial...

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MBAC6010: Managerial Economics Practice Questions 03/10/08 1. Which of the following conditions describe a perfectly competitive market? Many barriers to entry Firms are price takers The number of firms is large Firms’ products are differentiated There is complete information Firms are profit maximizers _____ Many barriers to entry __X__ Firms are price takers __X__ The number of firms is large _____ Firms’ products are differentiated __X__ There is complete information __X __ Firms are profit maximizers 2. Graph marginal costs from the table below and answer the following questions: Output Marginal costs 1 15 2 12 3 20 4 27 5 34 6 40 7 47 a. The firm can sell a helmet for $34 and the firm is producing 6 helmets. Is it maximizing profit? Why or why not? b. The firm can sell a helmet for $34 and the firm is producing 4 helmets. Is it maximizing profit? Why or why not? c. The firm can sell a helmet for $34. What is the profit-maximizing level of output?
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0 1 2 3 4 5 6 7 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 Quantity of output Cost Marginal Cost a. The firm is not maximizing profit. MR<MC. The firm should reduce output. b. The firm is not maximizing profit. MR>MC. The firm should increase output. c. The firm maximizes profit at 5 units. 3. The following graph shows cost curves for a perfectly competitive firm. a. If price is $13, what is the profit maximizing level of output? b. If price is $13, what is total profit at the profit-maximizing level of output? c. On graph paper, draw the supply curve for this firm.
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