PS 6 Solution

PS 6 Solution - Quantitative Intermediate Microeconomics...

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Quantitative Intermediate Microeconomics Answers to Problem Set #6 1) (See diagram 78K) a) TC=1,200+0.5Q 2 This implies that MC=Q. Q=300-P Q or P Q = 300-Q. TR=P Q *Q=(300-Q)Q=300Q-Q 2 . MR=300-2Q. Setting MR=MC: 300-3Q =Q. Q*=100. P Q = 300-Q =200. π =TR-TC =(300Q-Q 2 )-1,200+0.5Q 2 = 13,800 Consumer surplus=(300-200)*100*.5=5000 Producer surplus=[(200-100)*100]+[100*100*.5]=15000. Note that producer surplus equals profits+fixed costs. The deadweight loss equals (200-100)*(150-100)*.5=2,500 b) Q S =P since Q S =MC Q D =300-P Setting Q D = Q S implies P=300-P or P=150 and Q=150 Consumer surplus=(300-150)*150*.5=11,250 Producer surplus=(150-0)*150*.5=11,250 2) a) TR=P Q *Q=(968-20Q )Q=968Q-20Q 2 MR=968-40Q MC will be no higher than 8 since the firm can produce any output at 8 in the LA plant. Setting MR=8 implies 968-40Q=8 or Q=24. P Q =968-20Q=968-(20*24)=488 cents For outputs less than 14, the Mexican plant can produce at MC<8. For outputs higher than 14, the Mexican plant’s MC is be greater than 8. That is, 1+0.5Q=8 implies Q
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PS 6 Solution - Quantitative Intermediate Microeconomics...

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