EC101P39c - EC 2001 Problem Set No 3 Please note that this...

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EC 2001 Problem Set No. 3 Please note that this problem set will be helpful with questions requiring practice with “pencil and paper”, but there is of course additional material, requiring verbal and graphic analysis, with which you should be familiar but which is not included in the problem set. (1) The table below represents the cost structure facing a single-product, purely competitive, profit- maximizing firm. Fill in all the blanks. Assume only “whole” units can be produced, e.g., 5 units but not 5.4 units. (a) If the market price is $113, what is the profit-maximizing output (Q * )? (b) Calculate the total profit at Q * as well as at Q * + 1 and Q * − 1. (c) If the market price of this product falls to $63, how many units will they produce in the short run? The long run? Explain. (d) If the market price drops to $51, how many units will they produce in the short run? In the long run? Explain. Q TFC TVC TC AFC AVC ATC MC 0 --- --- --- --- 1 110 2 230 3 180 4 300 5 16 50 6 70 7 61.4 8 620 9 670 10 910 11 92.7 12 110
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(2) Globe Air is committed to flying the Des Moines-Sarasota route three times weekly regardless of economic conditions at least for the next year. Usually 90% of the seats are occupied. On
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