ps9s08sol - Economics 101 Spring 2008 Problem Set 9...

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Economics 101 – Spring 2008 Problem Set 9 Suggested Solutions 1. Question 5, page 378 a. With any two points in the table, it is possible to get the demand curve equation: P = 18 - ½ Q. Since demand is linear, the MR curve is a straight line with the same intercept but twice the slope. => MR = 18 - Q b. The profit maximizing output is such that MR = MC => Q=8 , P=14 With a constant MC of $10, the total cost of the firm is given by C(Q) = 10Q + FC. => Profit = 14*8 – (10*8 + FC) = 32-FC . c. In perfect competition P=MC => P=10, Q=16. d. Consumers will gain area B+C, while the producers will lose area B. So, the social gain is equal to area C. => Social gain=(½)(16-8)(14-10)=16. 2. Question 6, page 379 C=100+2Q 2 MC=4Q P=90-2Q MR=90-4Q a. A monopolist will choose Q m such that MR=MC => Q m =11.25 , P m =67.50 , Π m =406.25 b. In a competitive environment Q is such that MC=P => Q c =15 , P c =60 , Π c =350 P 18 8 16 36 MR MC Q 10 14 C A B
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c. 3. Question 8, page 379
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ps9s08sol - Economics 101 Spring 2008 Problem Set 9...

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