ps2f06 - Economics 101 Problem Set 2 Alan C Marco Due...

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Economics 101, Problem Set 2 Alan C. Marco Due 10/13/2006 Instructions. Due at the beginning of lecture (or beforehand in my box in the economics department). I encourage you to work in groups of 2 or 3. Please turn in only one problem set for each group, with the full names of all the students on the front page. Problem sets must be neat, readable, and concise. I prefer typed. They must be stapled if they are more than one page. 1. A firm has upward sloping MC and some FC . Using a graph, show the impact on the MC curve and AC curve of the following changes. In each graph show the old MC and AC curves as well as the new ones. (a) The firm experiences an increase in FC. (b) The firm experiences a $1 increase in MC (every unit now costs $1 more to produce). (c) The firm invests in R&D in order to lower its costs of production. 2. Suppose that individuals in a market have demand P =50 - q/ 5 , and that firms have marginal costs MC = 5+2 q.
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