midterm2SIans - 1. a. TC = TVC = 2Q; MC = ATC = AVC = 2 b....

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1. a. TC = TVC = 2Q; MC = ATC = AVC = 2 b. TC = 25 + Q; ATC = 25/Q + 1; VC = Q; AVC = MC = 1 c. No machine: 2 (when Q < 25); machine = 1+25/Q (when Q > 25) 2. a. Cost per dose must be relatively lower to make crack or elasticity of demand for cocaine must be relatively higher b. Coke, you can make larger profits because you will have a higher markup, because elasticity of demand must be higher 3. Graphic Covered during the session 4. 16 per firm will be produced in the longrun. The original price hike will shift the marginal cost of each good up by $25, but they are still price takers, so the price will not change in the short run. So they will produce where the market price meets their new marginal cost curve. This amount will be below their new LRATC minimum at $75 and the original quantity of 16 (this information is given in the problem). So firms will start exiting the market, which will lead to each firm producing more to cover the entire market demand, and this will also shift the supply for the market to the left, raising the price per good. This will keep
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This note was uploaded on 07/01/2011 for the course ECO 304K taught by Professor Hickenbottom during the Fall '10 term at University of Texas at Austin.

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midterm2SIans - 1. a. TC = TVC = 2Q; MC = ATC = AVC = 2 b....

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