Solution to Problem Set 09-10 _ECO100_

Solution to Problem Set 09-10 _ECO100_ - Prof. Gustavo...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Solutions to Problem Set 9-10 1. a) b) See diagram. i) Qo = 58 ii) Po = $10.20 iii) TR = P * Q = 58 * $10.20 = $591.60 iv) TC = AC * Q = $9.20 * 58 = $533.60 v) Profits = TR - TC = 58*($10.20 - $9.20) = $58 or (Po - ACo)Qo. c) i) Q = 80 (at MR = 0) ii) Q = 88 (at P = SAC) d) i) Q D = Q S => P = $7.50, Q = 84 ii) Profit = (P - AC) Q = approx ($7.50 - $7.10) 84 = $33.60 iii) See shaded area on graph e) MC and AC each shift up by $1.00 for each unit of output to SMC 1 and SAC 1 . MR = MC now at approximately Q = 55 giving P = $10.50 and AC = $10.50 Economic profits fall to perhaps 0. f) License fee is a fixed cost => no change in MC => non-parallel increase in AC with decreasing increase in AC with increased Q as the change in FC is spread over greater Q. MC = MR does not change => equilibrium is still at Q = 58 and P = $10.20. AC has risen reducing economic profits by $100 => Profit = $58 - $100 = -$42
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Solution to Problem Set 09-10 _ECO100_ - Prof. Gustavo...

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