aps5 - Intermediate Microeconomics - Wissink BRIEF ANSWERS...

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K K K 0 1 x=100 x=200 A B C D Intermediate Microeconomics - Wissink BRIEF ANSWERS TO PROBLEM SET #5 1 a. Not necessarily. Must also check 2nd-order condition (that mc cuts mr from below) and shut-down condition (that p $ sravc in short-run or p $ lratc in long-run). b. Not necessarily - could be that at mr = srmc, p < sratc, but p > sravc. In short-run you would still produce in order to minimize losses. c. Not necessarily. If implicit costs are large enough then it could be that accounting profit > 0 while economic profit < 0. d. False. Remember profit = 0 is economic profit, which includes as a cost the opportunity cost of owners time, labor and resources, etc. e. Dumb statement. Want to cost minimize at every level of output in order to profit maximize. f. Not necessarily. Some fixed costs may be avoidable through resale, sub-letting, etc., and therefore not sunk, or not fully sunk. 2. cost curves. curve - drawn assuming you have K 0 capital. curve - drawn assuming you have K 1 capital. Points A and B are on the lratc and on the lrtc curves. SUGGESTION: Try drawing the average total cost curve picture. It should have one lratc curve and two sratc curves. 3a. tc i = x i 2 + 10x i => mc i = 2x i + 10 Profit maximizing firms => mr = mc at x * Perfectly competitive firms => p = mr at x* and all other values of x So we get p = mc => p = 2x + 10 => x S = (1/2)p - 5 (srs firm)
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2 With 1000 identical firms, then X S = - 5000 + 500p (SRS market) If p = 20 => X S = 5,000 If p = 21 => X S = 5,500 => 500 more b. demand: p = 40 - (1/250)X => X D = 10,000 - 250p. Now set D = S => 10,000 - 250 p = - 5000 + 500p
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aps5 - Intermediate Microeconomics - Wissink BRIEF ANSWERS...

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