# Test2Answers2008 - be the same, and thus will be...

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ECO100 Term Test 2 (December 5, 2008) Answers Part I a) P m shaded = profit 10 MC = ATC MR DD Q m Q A P m , Q m are price and output. The shaded area is profit. Q A is the allocatively efficient level of output. b) DD MC Q m MR The monopolist will produce the revenue-maximizing level of output, since

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it will produce where MR = MC = 0. When MR = 0, total revenues have been maximized. Part II a) MC ATC dd P AVC P s q q is output. Shaded area is firm’s losses. P s is shutdown point. b) Number of firms will decrease, as firms exit the industry due to economic losses. In the long-run, the market price will equal \$15 since profit- maximizing firms must earn zero economic profits in the long-run, so price must equal (minimum) average total cost. c) The firm’s profit maximizing level of output will be unchanged, since market price (equals marginal revenue) is unchanged and the firm’s marginal cost is unchanged. Part III a) False. The price will be the same as in perfect competition. The level of output will also
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Unformatted text preview: be the same, and thus will be allocatively efficient. b) True. In the long-run, price equals (minimum) average total cost and average total cost will decline by the full amount of the tax. Part IV a) 4 pairs, to customers A, B, C, and D, since marginal revenue (price) exceeds marginal cost for these four potential customers. b) Consumer surplus will be nil. c) If the customers can sell their jeans to one another, the monopolist will not be able to price discriminate. For example, if the monopolist sold a pair of jeans for \$40 to customer D, customer D could sell the jeans to customers A, B, C. Part V Multiple Choice 1. (c) demand curve will be its marginal revenue curve 2. (c) be able to sell a lower output at each price 3. (e) None of the above (1,010 is correct) 4. (e) insufficient information to answer 5. (b) the cartel may breakdown if marginal revenue exceeds marginal cost for one of the oligopolists...
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## This note was uploaded on 03/02/2010 for the course MAT Mat133 taught by Professor Igfeild during the Spring '10 term at University of Toronto.

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Test2Answers2008 - be the same, and thus will be...

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