TEST2ANS.versionA.2006 - ECMA04H - VERSION A Sketchy...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECMA04H - VERSION A Sketchy Solutions to Second Term Test, written on November 17, 2006 These are the answers to VERSION A. Q1: D The shut down price = minAVC; AVC = TVC/q = .1q+6+14.4/q, which will reach its minimum when dAVC/dq=0; dAVC/dq = .1 - 14.4q -2 = 0, so q = 12, and min AVC = 1.2 + 6 + 14.4/12 = 8.4 or $8.40. The correct answer is (D). Q2: A The supply curve of the firm is given by its marginal cost curve, above AVC, which is P = .2q + 6, for all P >= $8.40; since 500q = Q, industry supply is given by P = .2(Q/500) + 6, or .0004Q + 6. Set this equal to the industry demand to find the SR equilibrium price, so .0004Q + 6 = 36 - .0008Q; Q = 30/.0012 = 25,000; P = 16. The correct answer is (A). Q3: E The individual firm’s output is q = 25,000/500 = 50; TC = 250 + 300 + 90 = 640; TR = Pq = 800. Therefore, profit = TR - TC = $160. The correct answer is (E). Q4: G Since this is a constant cost industry, its long run supply curve is horizontal at long run min AC. Min LRAC = $12, so the long run industry supply curve is P = 12. Therefore, we can find the long run equilibrium quantity where $12 = 36 - .0008Q; Q = 24/.0008 = 30,000. The correct answer is (G). Q5: A In the long run equilibrium, each firm must be at the most cost-efficient size, which is 30 units of output. We can find the number of firms in long run equilibrium as N = Q/q = 30,000/30 = 1000 (q is at minimum LAC). The
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

TEST2ANS.versionA.2006 - ECMA04H - VERSION A Sketchy...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online