MGMT 407.07
Spring 2009
MIDTERM 3
NAME_______________________
This is an openbook and opennotes 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 firstdegree 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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 Spring '11
 Staff
 Economics, Interest Rates, Monopoly, Supply And Demand, producer

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