mt2solution - Econ 100B, Midterm 1 Version A yellow...

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Econ 100B, Midterm 1 LAST NAME: _________________________ Version A – yellow Tuesday, May 20, 2008 FIRST NAME: _________________________ STUDENT ID: _________________________ SIGNATURE: __________________________ You have one hour and twenty minutes for the exam. Show all work. We reserve the right to deduct points from answers that are hard to read. There are a total of 80 points possible. No notes, calculators, electronic devices, etc. are allowed. There are two versions of the exam-- if you have the right answer to the wrong version of the exam, we may suspect you of cheating. 1) (22 points) Assume the cost function for Pike’s Oatmeal is: 2 2 15 Q Q SRTC + + = a) Below what price would Pike’s be better off shutting down? (3 pts) Shut down when P<min AVC. You can either solve for MC=AVC (2+2Q=2+Q) or you can just see that AVC is linear, so AVC will be at minimum at Q=0. To find the price that corresponds to, plug into AVC AVC(0)=2. Shut down when P<2 b) Find the supply curve for Pike’s Oatmeal. (3 pts) MC=2+2Q P=2+2Q so 2Q=P-2, or Q=P/2 – 1 (supply or inverse supply both receive full credit) c) If Pike’s is profit-maximizing how much Q should it produce when P=12? (2 pts) Q=12/2 – 1 Q=5
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Does the second order condition for profit-maximization hold? (3 pts) Q P Q 2 2 - - = p 2 2 - = Q p yes e) If there are 10 identical firms (including Pike’s) in the oatmeal industry, what is the short run market supply curve? (4 pts) Q= P/2 -1 Multiply by 10 Qmarket= 10*P/2 – 10 Qmarket= 5P - 10 f) Now suppose market demand is given by Qd=8-P Find the short-run equilibrium P and Q in the market. (3 pts) 5P-10=8-P 6P=18 P=3 h) If there are 10 firms in the market, would there be entry or exit or neither in this industry? Explain how you know. (4 pts) profit < 0 so there will be exit
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This note was uploaded on 09/18/2008 for the course ECON 100B taught by Professor Rauch during the Winter '07 term at UCSD.

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mt2solution - Econ 100B, Midterm 1 Version A yellow...

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