202-S08 PS5 - B) Suppose instead that a firms property tax...

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Economics 202 Problem Set 5 1. Bart is taking Economics 202 and scoffs at a claim the textbook makes. “It’s crazy to think that a firm could be satisfied with an economic profit of zero!” he says. Please explain to Bart how this can be by using the concepts of accounting profit and economic profit. 2. Use the following table in answering the questions that follow. Q 0 1 2 3 4 TVC $0 10 24 44 70 TFC $10 10 10 10 10 What will be the PC firm’s output and profit at each of the following prices? (Assume for this problem that the good is indivisible.) a) $12 b) $16 c) $24 d) $30 3. Consider a competitive market in which demand is given by Q d = 20 – P and supply is given by Q s = P. Please provide the following: equilibrium price and quantity, consumer surplus, producer surplus. 4. A) Suppose that the government imposes a 25% tax on economic profits of a PC firm. Explain how a firm’s optimal output will change in response and why.
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Unformatted text preview: B) Suppose instead that a firms property tax rises by $100. Explain how a firms optimal output will change in this case and why. 5. Illustrate the Shutdown Rule (i.e., assume that the firm is making a loss) for a competitive firm graphically by showing its profit if it shuts down or stays open in a diagram with MC, AVC, AC curves. 6. Can a monopoly independently choose both price and quantity? Explain. 7. A monopoly faces the following demand schedule. It costs the monopoly $14 to produce each unit of output and it has FC = $4. Provide the TR, MR, and profit for each level of output. P $20 $19 $18 $17 $16 $15 $14 Q 1 2 3 4 5 6 7 8. The demand curve facing a monopoly is given by P = 20 Q and MC = AC = $4. A. What is the firms TR function? B. What is the firms MR function? C. What is the optimal output? D. What is the maximum profit?...
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