Econ100C-Fall2010-Midterm1-sols

Econ100C-Fall2010-Midterm1-sols - Economics 100C...

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Economics 100C: Microeconomics C Midterm 1 Solutions: Fall 2010 1. (24 pts) Consider the short run market for toothpicks. This market is perfectly competitive with a price of P per box where P > 0. Ace Toothpicks has the short run cost function C ( q ) = 40 + 0.03 q 2 . a. Find this company’s profit maximizing quantity.     2 max 40 0.03 : ' 0.06 0 * 16.67 0.06 q qP q q FOC q P   b. For what values of P (if any) will the firm shut down? Briefly explain. Shut down if: * 0.03 0.06 2 Pa v cq P P P P    The firm will not shut down for any P > 0. c. For what values of P (if any) would this firm leave this market in the long run? Briefly explain. (Assume that the long run cost function is the same as the short run with the exception that C (0) = 0.) Leave market (shut down) if:   0.06 * 40 0.03 0.06 4.8 2.19 P P P P  
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2. (27 pts) A monopolist has the short run cost function of   2 10 100 CQ Q Q  . Inverse market demand is equal to   90 3 D PQ Q  . a. Assuming no shutdown find the monopolists profit maximizing price and quantity.
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This note was uploaded on 10/21/2011 for the course ECON 100c taught by Professor Staff during the Spring '08 term at UCSD.

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Econ100C-Fall2010-Midterm1-sols - Economics 100C...

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