h5f10 - ECO 304K INTRO MICRO Fall 2010 Hickenbottom...

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ECO 304K INTRO MICRO Fall 2010 Hickenbottom HOMEWORK #5 (Due November 17 th at 12pm) 1. An economy is currently made up of a firm that produces bread, a firm that produces butter, and a consumer who consumes both bread and butter. Current production is 100 units of bread, 50 units of butter which the consumed by the consumer. If the output changed to 75 units of bread and 60 units of butter, the profit of the butter firm would go up by $42. The profit of the bread firm would go down by $76. The consumer prefers 75 bread and 60 butter to 100 bread and 50 butter. It is so much better that the consumer would pay $40 more to have 75 bread and 60 butter rather than have 100 bread and 50 butter. Explain, using the definition, why you know it is not Pareto Efficient to have the economy produce 100 bread and 50 butter. (2 points) 2. Answer part (a) assuming the firm faces the market demand below: q P q P 0 40 6 28 1 38 7 26 2 36 8 24 3 34 9 22 4 32 10 20 5 30 11 18 a) Explain why, even if we knew nothing of the firm's costs, we don’t need any more of the demand curve if the firm is a monopolist. (1 point) Suppose the cost of producing the firm's output is the following: q TC q TC 0 9.129 5 138.5 1 34.75 6 166.2 2 60.25 7 196 3 86 8 229 4 112 9 269 b) If a monopolist has the costs and demand given above, find the firm's MR,
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This note was uploaded on 02/28/2011 for the course ECO 304K taught by Professor Hickenbottom during the Spring '10 term at University of Texas at Austin.

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h5f10 - ECO 304K INTRO MICRO Fall 2010 Hickenbottom...

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