Application_Problems_Ch06 - Chapter6:ApplicationsProblems 1.

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Chapter 6: Applications Problems 1. You are a self-employed accountant who specializes in tax preparation  services. There are many competitors in your industry who offer a similar  service but quality of service varies among competitors. Entry into this  industry is relatively easy. Your company's daily demand curve and cost  functions, including your own opportunity costs, are currently (with Q being  number of tax returns processed per day):  Demand: P= 100 - 4Q Total Fixed Costs: TFC = 60 Total Variable Costs:  TVC = (8.5)Q 2 Marginal Costs: MC = 17Q a. Solve for your company's profit maximizing output and price.  b. Calculate the level of total profit or loss per period that would  accrue to the firm under the output and price determined in (a).  c. Give a conjecture about what might happen to your profits over  time, given the characteristics of your market described above.  2. Consider an industry where a homogeneous product is sold by two firms,  with market demand of P = 100 - Q. Each firm has identical constant costs  of ATC = MC = $40.  a. If the sellers collude illegally to set price and output, what is the  resulting price, output, and profit per firm?  b. Solve for the Cournot output and resulting price and profit, and  compare to a).  c. Solve for the Bertrand price and resulting output and profit, and  compare to a) and b). 3.
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This note was uploaded on 09/23/2010 for the course ECON 305 taught by Professor Snyder during the Fall '10 term at Arizona Western College.

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Application_Problems_Ch06 - Chapter6:ApplicationsProblems 1.

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