Econ301_review2

Econ301_review2 - Econ 301 Intermediate Microeconomics...

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Econ 301 Intermediate Microeconomics Review Problem 2 July 26 - 2010 Jingbo Cui (ISU) Econ 301-Summer 2010 July 26 - 2010 1 / 17 The 2nd Midterm covers the following chapters: Ch.6 Firms and Production; Ch.7 Costs; Ch.8 Competitive Firms and Markets; Ch.9 Properties and Applications of the Competitive Model; Ch.11 Monopoly; Ch.12 Pricing and Advertising. For more details, please refer to the corresponding lecture slides. Jingbo Cui (ISU) Econ 301-Summer 2010 July 26 - 2010 2 / 17
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Problem 1 I The figure 1 shows a graph of cost curves for a competitive firm. Jingbo Cui (ISU) Econ 301-Summer 2010 July 26 - 2010 3 / 17 Problem 1 II Q: If the firm is to earn economic profit, price must exceed? A: $ 10. Q: The firm will incur economic losses if the price is less than? A: $ 10 Q: If the market price is $ 15 per unit, the firm will earn profits of? A: $ 160. Q: In the short-run, under what situation the firm would shut down? A: When price is below the minimum of AVC; Q: In the short-run, which part of curve is the firm’s supply curve? A: The short-run firm supply curve is the marginal curve above the AVC curve. Jingbo Cui (ISU) Econ 301-Summer 2010 July 26 - 2010 4 / 17
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Problem 2 Suppose a firm has the following total cost function: TC = 100 + 4 q 2 . Q: What is the minimum price necessary for the firm to earn profit? A: AC = 100 / + 4 q , MC = 8 q . This is minimized when MC = AC , solving yields q = 5 and AC = 40. Thus a price greater than $ 40 is required for the firm to earn profit. Q: Below what price will the firm shut down in the short run? A: AVC = 4 q and MC = 8 q . The minimum AVC is when MC = AVC , solving yields q = 0 and AVC = 0, AVC is below MC for all levels of output, AVC will be less than price for all levels of output. The firm will not shut down in the short run. Jingbo Cui (ISU) Econ 301-Summer 2010 July 26 - 2010 5 / 17 Problem 3 I The below figure shows supply and demand curves for milk. In an effort to
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This note was uploaded on 08/01/2011 for the course ECON 301 taught by Professor Corinnelanginier during the Summer '07 term at Iowa State.

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Econ301_review2 - Econ 301 Intermediate Microeconomics...

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