Test2Answers2005-1 - James E Pesando ECO100 Test#2(December...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
James E. Pesando ECO100 Test #2 (December 9, 2005) Answers: 1. (a) MC = $0.30 (since P = $0.30 and P = MC if perfectly competitive firm is profit maximizing (b) Each firm earns $200,000 (i.e., .10 times 2 million) since P- ATC = .10 and q = 2 million (c) No P ($0.30) > ATC ($0.20) so firms in the licorice industry are earning economic profits. As a result, new firms will enter the industry, the supply curve will shift to the right, and market price will fall 2. (a) See Text, Figure 15.4, page 326. (b) Monopolist’s price and output will not change. The profit-maximizing level of output is unchanged, since MR and MC are unaffected by the lump sum tax. Since the monopolist will earn zero economic profit (and will not suffer an economic loss), the monopolist will continue to produce its (unchanged) profit-maximizing output. (c) Monopolist output, before tax, is not allocatlvey efficient since price (value to buyer) exceeds marginal cost. The lump sum tax will not affect allocative efficiency, since the monopolist
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Test2Answers2005-1 - James E Pesando ECO100 Test#2(December...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online