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ex407m3sp0907 - MGMT 407.07 Spring 2009 MIDTERM 3 NAME This...

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MGMT 407.07 Spring 2009 MIDTERM 3 NAME_______________________ This is an open-book and open-notes examination. Full credit will be given only when the entire solution process and calculations are shown. Assume prior results are correct in multipart questions. 1. (55 points and 30 minutes) Suppose the firms in a competitive industry are faced with the following cost function: TC = 36 - Q + 4Q 2 (10) a. How many units should be produced at a price of 8? (20) b. What is the optimal production per firm and the price in the long run? (5) c. How many units should you produce at P = 1.5? (20) d. What is the contribution to fixed cost and profit, when P = 1.5? 2. (35 points and 20 minutes) Suppose you are a monopolist facing a demand curve of Q = 45 – 3 P, and marginal costs are constant at $6 per unit. (10) a. Compute the monopoly price, quantity and profit. (15) b. Now suppose that the monopolist can engage in first-degree price discrimination at a cost of $7 per unit. What are the profits of this option? (10) c. Draw a diagram of the above results.. 3. (20 points and 10 minutes) What arguments support the idea: ‘gross domestic product per capita is a poor measure of the welfare of the citizens of a country.’ 4.
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