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ECON 2296  Practice Questions Chapter 8
1) The following table contains information for a price taking competitive firm.
Complete the table and
determine the profit maximizing level of output (round your answer to the nearest whole number).
Output
TC
MC
FC
AC
TR
AR
MR
0
5
0
1
7
10
2
11
20
3
17
30
4
27
40
5
41
50
6
61
60
2) Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is
highly competitive, with boxes currently selling for $100 per thousand. Conigan's total cost curve is given by
the equation
TC = 3,000,000 + 0.001Q
2
,
where Q is measured in thousand box bundles per year.
a)
Calculate Conigan's profit maximizing quantity. Is the firm earning a profit?
b) Analyze Conigan's position in terms of the shutdown condition. Should Conigan operate or shut down in
the shortrun?
3) The table below lists the shortrun costs for One Guy's Pizza.
If One Guy's can sell all the output they
produce for $12 per unit, how much should One Guy's produce to maximize profits?
Does One Guy's Pizza
earn an economic profit in the shortrun?
Q
TFC
TVC
ATC
AVC
MC
Profits
58
100
336.4
59
100
348.1
60
100
360
61
100
372.1
4) Laura's internet services has the following shortrun cost curve:
where
q
is Laura's
output level,
K
is the number of servers she leases and
r
is the lease rate of servers.
Currently, Laura leases 8
servers, the lease rate of servers is $15, and Laura can sell all the output she produces for $500.
Find Laura's
shortrun profit maximizing level of output.
Calculate Laura's profits.
If the lease rate of internet servers rises
to $20, how does Laura's optimal output and profits change?
5) The market demand for a type of carpet known as KP7 has been estimated as:
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View Full DocumentP = 40  0.25Q, where P is price ($/yard) and Q is rate of sales (hundreds of yards per month).
The market supply is expressed as:
P = 5.0 + 0.05Q.
A typical firm in this market has a total cost function given as:
C = 100  20.0q + 2.0q
2
.
a)
Determine the equilibrium market output rate and price.
b) Determine the output rate for a typical firm.
c)
Determine the rate of profit (or loss) earned by the typical firm.
6) The market for wheat consists of 500 identical firms, each with the total cost function shown:
TC = 90,000 + 0.00001Q
2
where Q is measured in bushels per year.
The market demand curve for wheat is Q = 90,000,000  20,000,000P, where Q is again measured in
bushels and P is the price per bushel.
a) Determine the shortrun equilibrium price and quantity that would exist in the market.
b) Calculate the profit maximizing quantity for the individual firm.
Calculate the firm's shortrun profit
(loss) at that quantity.
c) Assume that the shortrun profit or loss is representative of the current longrun prospects in this market.
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 Fall '10
 W.GrayGiovannetti
 Economics

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