Tute 9answers - Introductory microeconomics ECON1001...

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Introductory microeconomics ECON1001 Semester 1 2010 Tutorial 9 Week 10 Q1 The following table gives a rate schedule for a long distance phone call between two regions using a national carrier. T im e F ir s t M in u te E a c h A d d itio n a l M in u te 8 A M – 5 P M $ .3 5 $ .2 6 5 P M – 1 1 P M $ .2 3 $ .1 5 1 1 P M – 8 A M $ .1 8 $ .1 3 Explain why these different long distance rates depend on the time of day. In the evening people are more likely to place a long distance call for personal, as opposed to business, reasons. Therefore evening phone calls are more price- sensitive. The answer is not simply that the demand curve for day calls is further to the right than the demand for night calls. Different price elasticities are crucial. Q2 Consider the picture below a) Calculate the economic profit, if any, earned by the firm? Profit-maximising price is $75 and output is 30 since MR = MC . Profit = ( P ATC ) × Q = ($75 – $60) × 30 = $15 × 30 = $450 b) Calculate the total cost when the firm illustrated is maximising profit. Profit-maximising price is $75 and output is 30 since MR = MC . Total cost = ATC × Q = $60 × 30
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c) Calculate the economic profit earned by the monopolistically competitive firm in long-run equilibrium and explain what the firm’s output will be. Economic profit for any monopolistically competitive firm is $0 in the long run. Since entry will occur, output will be below 30 units, but the exact output level is unknown. Q3 Suppose two consumers Andy and Beth have the following demand functions for
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Tute 9answers - Introductory microeconomics ECON1001...

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