Economics 501.01
Microeconomic Theory
Professor Patricia Reagan
Autumn 2007
DUE TUESDAY NOVEMBER 20
HOMEWORK #5
1.
Suppose that an industry is characterized as follows:
2
2
100
q
C
+
=
each firm’s total cost function
q
MC
4
=
firm’s marginal cost function
Q
P
2
90

=
industry demand curve
Q
MR
4
90

=
industry marginal revenue curve
a.
If there is only one firm in the industry, find the monopoly price, quantity, and
level of profit.
b.
Find the price, quantity, and level of profit if the industry is competitive.
2.
Suppose a profitmaximizing monopolist is producing 800 units of output and is
charging a price of $40 per unit.
a. If the elasticity of demand for the product is 2, find the marginal cost of the
last unit produced.
b. What is the firm’s percentage markup of price over marginal cost?
c. Suppose that the average cost of the last unit produced is $15 and the firm’s
fixed cost is $2000. Find the firm’s profit.
3.
A monopolist faces the demand curve
Q
P

=
11
, where
P
is measured in dollars
per unit and
Q
in thousands of units. The monopolist has a constant average cost of $6
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 Fall '07
 REAGAN
 Economics, marginal revenue curve, Norman Gina

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