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final review

# final review - UNIVERSITY OF WATERLOO Department of...

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UNIVERSITY OF WATERLOO -- Department of Economics -- Professor J. Cuenca Economics 201: Review Questions for the Final Examination 1. A market with the following demand curve: P + 3X = 24 is supplied by a single profit- maximizing firm whose total-cost function is TC = 2X 2 + 4X + 8. (a) What is the total- revenue equation for this firm? [Hint : recall that TR = XP ]. (b) Calculate this firm's equilibrium output and price [Hint : MR = -6X + 24 and MC = 4X + 4 ] AND DRAW A DIAGRAM TO ILLUSTRATE YOUR ANSWER TO (b). Suppose now that the firm introduces a price discrimination scheme, with a different price for each of the two halves of the total equilibrium output. (c) REFER BACK TO YOUR DIAGRAM and find the resulting increase in economic profits. [ Note : assume that the increase in costs due to the price discrimination scheme is insignificant ]. 2. A market's total demand is given by P = 80 - (Z/2). This market is supplied by a "dominant firm" and by other, relatively "small firms". The small firms' total supply is given by P = 4 Y. The dominant firm's total-cost function is TC = (X 2 /20) + (17X/9) + 10 [ In case you have no calculus: Marginal Cost = MC = (X/10) + (17/9) ].

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final review - UNIVERSITY OF WATERLOO Department of...

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