# cm - Question#3 Suppose newsprint is produced in a...

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COMM/FRE 295 Practice Questions Set #4 Competitive Market Question #1 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 is: 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 short-run? Question #2 Suppose you are the manager of a watch-making firm operating in a competitive market. Your cost of production is given by C = 200 +2q 2 , where q is the level of output and C is total cost. (a) If the price of watches is \$100, how many watches should you produce to maximize profit? (b) What will the profit level be? (c) At what minimum price will the firm produce a positive output?
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Unformatted text preview: Question #3 Suppose newsprint is produced in a perfectly competitive market by many identical firms. Each firm (including potential entrants) has a total variable cost VC(q) = 40q + 0.5q 2 . Each firm’s fixed cost is equal to \$50. a) Assuming that the fixed cost is entirely non-sunk (i.e. recoverable), calculate the price below which the firms will not produce any output in the short run. b) Assume that there are 12 identical firms in this industry. Currently the market demand for newsprint is Q d = 360 – 2P. What is the short-run equilibrium price? c) Assuming the same market demand as in part (b), calculate the competitive long-run equilibrium. (i) quantity produced by each firm, (ii) price, (iii) total industry demand; and, (iv) number of firms. d) If the government imposes a tax t = \$5 per unit of newsprint production, how will your solutions to part (c) change?...
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## This note was uploaded on 05/11/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at UBC.

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