Review for Test - Economics 2010 Section III Questions for...

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Economics 2010 Section III Questions for Review 1. Fill in the cost sheet problem posted on the website. 2. Explain why MC must pass through the minimum of ATC and AVC, but not AFC. 3. Why do competitive firms produce where P = MC? 4. Why don’t monopolies produce where P = MC? 5. Show (graphically) how MC pricing can result in losses for the monopoly. 6. Assume that a competitive constant-cost industry is in long-run equilibrium when market demand suddenly decreases. What happens next? 7. Compare MR and AR for a monopolist. 8. What is the monopolist's profit under the following conditions? The profit-maximizing price charged for goods produced is $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units, marginal cost is $8, and average total cost is $7. 9. A firm’s average total cost is $100, its fixed cost is $2200, and its output is 200 units. What are its average variable costs? 10. Suppose a firm is producing where its MC is less than AVC. What can you say about ATC
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Unformatted text preview: (rising, falling, etc.)? 11. How do firms’ fixed costs affect their output decision? Problems from last year’s exam: Long Problem – SHOW WORK OR YOU WILL LOSE POINTS!! 1. The market for gilders is initially competitive and the market demand is: D Q P 9 . 231-= . The combined marginal costs of the firms in the gilder industry are: Q MC 2 . 11 + = . a. Graph the market demand and MC curves, and indicate the MR curve for the firms in the gilder industry below. How much is produced in the industry and what is the price of gilders? b. What are consumer surplus and producer surplus in the market? c. What is the DWL, if any, for this market? d. Now suppose that one company buys out all of the firms in the gilder market, but has the same combined MC. Draw the monopolist’s MR on your original graph above. How much does the monopolist produce and what price do they charge? e. What are CS and PS with the monopoly? f. What is the DWL, if any, with the monopoly?...
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