# chap008 - Chapter 8: Answers to Questions and Problems 1....

This preview shows pages 1–3. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 8: Answers to Questions and Problems 1. a. 7 units. b. \$28. c. \$224, since \$32 x 7 = \$224. d. \$98, since \$14 x 7 = \$98. e. \$126 (the difference between total cost and variable cost). f. It is earning a loss of \$28, since (\$28 -\$32) x 7 = - \$28. g.- \$126, since its loss will equal its fixed costs. h. Shut down. 2. a. Set P = MC to get \$80 = 8 + 4Q. Solve for Q to get Q = 18 units. b. \$80. c. Revenues are R = (\$80)(18) = \$1440, costs are C = 40 + 8(18) + 2(18) 2 = \$832, so profits are \$608. d. Entry will occur, the market price will fall, and the firm should plan to reduce its output. In the long-run, economic profits will shrink to zero. 3. a. 7 units. b. \$130. c. \$140, since (\$130 – 110) x 7 = \$140. d. This firm’s demand will decrease over time as new firms enter the market. In the long-run, economic profits will shrink to zero. 4. a. MR = 200 – 4Q and MC = 6Q. Setting MR = MC yields 200 – 4Q = 6Q. Solving yields Q = 20 units. The profit-maximizing price is obtained by plugging this into the demand equation to get P = 200 - 2(20) = \$160. b. Revenues are R = (\$160)(20) = \$3200 and costs are C = 2000 + 3(20) 2 = \$3200, so the firm’s profits are zero. c. Elastic. d. TR is maximized when MR = 0. Setting MR = 0 yields 200 – 4Q = 0. Solving for Q yields Q = 50 units. The price at this output is P = 200 – 2(50) = \$100. e. Using the results from part d, the firm’s maximum revenues are R = (\$100) (50) = \$5,000. f. Unit elastic. Managerial Economics and Business Strategy, 7e Page 1 5. a. A perfectly competitive firm’s supply curve is its marginal cost curve above the minimum of its AVC curve. Here, 2 50 8 3 i i i MC q q =- + and 2 3 2 50 4 50 4 i i i i i i i q q q AVC q q q- + = =- + . Since MC and AVC are equal at the minimum point of AVC, set MC i = AVC i to get 2 2 50 8 3 50 4 i i i i q q q q- + =- + , or 2 i q = . Thus, AVC is minimized at an output of 2 units, and the corresponding AVC is ( 29 ( 29 2 50 4 2 2 46 i AVC =- + = . Thus the firm’s supply curve is described by the equation 2 3 8 50 i i q q MC +- = if \$46 P ≥ ; otherwise, the firm produces zero units. b. A monopolist produces where MR = MC and thus does not have a supply curve. c. A monopolistically competitive firm produces where MR = MC and thus does not have a supply curve. 6. a. Q = 3 units; P = \$70. b. Q = 4 units; P = \$60....
View Full Document

## This note was uploaded on 05/26/2011 for the course BE 401 taught by Professor Valero,m during the Spring '08 term at University of Michigan-Dearborn.

### Page1 / 6

chap008 - Chapter 8: Answers to Questions and Problems 1....

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online