Ch08 Textbook Answers

Ch08 Textbook Answers - Chapter 8 Exercises 1-15 1 The data...

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Unformatted text preview: Chapter 8: Exercises 1-15 1. The data in the table on page 307 give information about the price (in dollars) for which a firm can sell a unit of output and the total cost of production. a. Fill in the blanks in the table. b. Show what happens to the firm’s output choice and profit if the price of the product falls from $60 to $50. q P R P = 60 C π P = 60 MC P = 60 MR P = 60 R P = 50 MR P = 50 π P = 50 60 100 1 60 150 2 60 178 3 60 198 4 60 212 5 60 230 6 60 250 7 60 272 8 60 310 9 60 355 10 60 410 11 60 475 The table below shows the firm’s revenue and cost for the two prices. q P R P = 60 C π P = 60 MC P = 60 MR P = 60 R P = 50 MR P = 50 π P = 50 60 0 100-100 ___ ___ 0 ___-100 1 60 60 150 -90 50 60 50 50-100 2 60 120 178 -58 28 60 100 50 -78 3 60 180 198 -18 20 60 150 50 -48 4 60 240 212 28 14 60 200 50 -12 5 60 300 230 70 18 60 250 50 20 6 60 360 250 110 20 60 300 50 50 7 60 420 272 148 22 60 350 50 78 8 60 480 310 170 38 60 400 50 90 9 60 540 355 185 45 60 450 50 95 10 60 600 410 190 55 60 500 50 90 11 60 660 475 185 65 60 550 50 75 At a price of $60, the firm should produce ten units of output to maximize profit, which is $190 when q = 10. This is also the point closest to where price equals marginal cost without having marginal cost exceed price. At a price of $50, the firm should produce nine units to maximize profit, which will be $95. Thus, when price falls from $60 to $50, the firm’s output drops from 10 to 9 units and profit falls from $190 to $95. 2. Using the data in the table, show what happens to the firm’s output choice and profit if the fixed cost of production increases from $100 to $150 and then to $200. Assume that the price of the output remains at $60 per unit. What general conclusion can you reach about the effects of fixed costs on the firm’s output choice? The table below shows the firm’s revenue and cost information for fixed cost ( F ) of $100, $150, and $200. In all three cases, with fixed cost equal to 100, then 150, and then 200, the firm will produce 10 units of output because this is the point closest to where price equals marginal cost without having marginal cost exceed price. Fixed costs do not influence the optimal quantity, because they do not influence marginal cost. Higher fixed costs result in lower profits, but the highest profit always occurs at the same level of output, which is 10 units in this example....
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This note was uploaded on 09/24/2009 for the course ECON 2296 taught by Professor Gray during the Spring '09 term at Langara.

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Ch08 Textbook Answers - Chapter 8 Exercises 1-15 1 The data...

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