ECO 108 Spring 2011 Test #1 Version C KEY

ECO 108 Spring 2011 Test #1 Version C KEY - ECO 108.01 0.10...

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ECO 108.01 – 0.10 Answer Key Spring 2011 Test #1 Show your work and clearly indicate your answer! The # in ( ) before each question or part of a question is its point value. (20)1. A firm produces Good X. The following diagram shows the demand curve for its output and the corresponding marginal revenue curve. The demand curve is linear. The firm’s total cost function is TC = 20*X. (3)a. Estimate the level of output at which the firm’s total revenue is at a global maximum. X = 200 (2)b. Estimate the range of output over which the slope of the firm’s total revenue curve is negative. 200 < X < 400 (3)c. Calculate the firm’s average cost function. AC = 20 (3)d. Calculate the firm’s marginal cost function. MC = 20 (3)e. In the diagram, draw in and label the firm’s average cost and marginal cost curves. (3)f. Estimate the firm’s optimal level of output. X = 120 (3)g. In the diagram, clearly indicate the firm’s profit at X = 100. (5)2. A firm produces Good X using just labor. The production function is X = (1/40)*L, where L is its labor input measured in hours. The price of a unit of labor is $20. Find its total cost function.
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