Solution 5 - ECON/FRE 374 Problem Set 5 Due: 4 PM, Friday,...

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ECON/FRE 374 – Problem Set 5 Due: 4 PM, Friday, November 18, 2005 Instructions: a) Your grade on this problem set will be determined by randomly grading a single problem from the set below. It is thus important to do each question carefully as any one problem could determine your grade. b) Problem sets are to be handed in at the beginning of class. Please do not upload your problem sets in webct. c) Any problem set received after the time it is due will not be graded. d) Please label and mark all graphs clearly. Questions (each question is potentially worth 10 points): 1) Consider a compact disc market. The price of a disc sold at the market is $12. The cost of transporting the disc to the market is 10 cents per disc per mile. There is a single road (extending in only one direction) to this market and firms can locate uniformly along this road at a distance of 1 mile from each other. Assume that there is a firm producing at the market center (i.e. at mile 0). a) Assume the firms marginal cost schedule is given according to the following table. Marginal Cost Schedule for Producing Compact Discs Production Scale Cost Per Unit Q (quantity) ≤ 500 $ 8 500<q $13 (1) What is the distance in miles from the market for the last firm that produces for this market? 40 miles. (2) How many firms produce for this market? Please explain carefully how you got your answer. 1 firm at the market and 40 firms on each mile marker from 1 till 40, thus a total of 41 firms. (3)
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This note was uploaded on 11/29/2010 for the course ECONOMICS 300-400 taught by Professor Varies during the Spring '10 term at Cornell University (Engineering School).

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Solution 5 - ECON/FRE 374 Problem Set 5 Due: 4 PM, Friday,...

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