202-S08 PS5 SN

202-S08 PS5 SN - In case B the after-tax profit function is...

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Economics 202 Problem Set 5--Brief Answers 1. As noted in class, economic profit = accounting profit – opportunity cost. Thus, a firm with zero economic profit may be making a very large accounting profit if its opportunity cost is very large. 2. Q 0 1 2 3 4 MC -- 10 14 20 26 P = $12: Q = 1, Profit = $-8 P = $16: Q = 2, Profit = $-2 P = $24: Q = 3, Profit = $18 P = $30: Q = 4, Profit = $40 3. P E = $10, Q E = 10. CS = ½ (10)(20-10) = 50, PS = ½ (10)(10) = 50. 4. In each case, the optimal quantity remains unchanged. In case A), the after-tax profit function is 75% of the before-tax profit function but the peak with respect to Q remains the same.
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Unformatted text preview: In case B), the after-tax profit function is $100 less than the before-tax profit function but the peak with respect to Q remains the same. 5. Provided in sections. 6. No, once the monopoly chooses one of the variables, the demand curve determines the other. 7. P 20 19 18 17 16 15 14 Q 1 2 3 4 5 6 7 TR 20 38 54 68 80 90 98 TVC 14 28 42 56 70 84 98 TC 18 32 46 60 74 88 102 Profit 2 6 8 8 6 2 -4 8. A. TR = P*Q = 20Q-Q 2 , B. MR = 20-2Q, C. Q = 8, D. 64...
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