PS9 - METU Department of Economics Econ 101: Introduction...

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1 METU Department of Economics Econ 101: Introduction to Economics I All sections (01-02-03) Fall 2011 PROBLEM SET 9 (Chapter 14-15, Lipsey 15) PROBLEMS 1. The Chrome Corporation is a monopolistically competitive firm with no fixed costs. Currently, in the short-run, it is producing x' units of output. At x' its marginal revenue equals \$4, its total revenue \$96, and its marginal revenue function is MR = 20 - 2x. At x', its short run average total cost is at its minimum value. Assuming it is maximizing its profit at x', what do each of the following equal. a. the firm's output level; b. the firm's price; c. the firm's short-run average total costs; d. the firm's total cost; e. the firm's marginal cost; f. the firm's short-run profit. 2. The following table provides information about the family income distribution both in country A and country B. Family Income Rank Share of Aggregate Income (%) Country A Country B Lowest fifth 10 1 Second fifth 15 5 Middle fifth 20 10 Fourth fifth 25 19 Highest fifth 30 65 a. Draw the Lorenz curves for family income for both countries on the same diagram b. Which of the two countries has more equal family income distribution? Why? c. Assume that you are just employed as the economist for the OECD. Beside the above figures you are given that Gini coefficient for country A = 0.55 while Gini coefficient for Country B = 0.35. What can you say about the situation?

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2 3. The following diagram shows the structure of cost and demand facing a monopolistically competitive firm in the short run. a) Identify the following on the graph and calculate each one. i. Profit- maximizing output level. ii. Profit – maximizing price. iii.
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This note was uploaded on 01/05/2012 for the course ECON 101 taught by Professor Gulipektunc during the Spring '11 term at Middle East Technical University.

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PS9 - METU Department of Economics Econ 101: Introduction...

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