Unformatted text preview: COMM 220 — PRACTICE PROBLEMS 1. Suppose a ﬁrm’s production function is q(L,K) = SOLO‘SKO'S, where q = the number of
output, K = the number of capital input, and L = the number of labour input. The unit
cost of labour is $25, the unit cost of capital is $100, and the unit cost of raw material
is $ 1 0. a. Suppose the ﬁrm has a ﬁxed capital input of 10. Find the ﬁrm’s total cost,
average cost, and marginal cost functions. How many L is required to produce
2,000 units of output? What is the average cost per unit? Suppose the ﬁrm can change its use of K and L to minimize the total cost of
production. How many K and L are required to produce 2,000 units of output?
What is the average cost per unit? Suppose that the demand (Qd) and supply (Qs) functions for a product are: FTP Qd = 6342 — 242P Qs = 948 + 106P Find the equilibrium price and quantity of the product. Find the consumer surplus and producer surplus at the market equilibrium.
Suppose P is regulated at $12. How would this policy impact the market? Find
the changes in consumer surplus and producer surplus, and the deadweight loss.
Suppose P is regulated at $18. How would this policy impact the market? Find
the changes in consumer surplus and producer surplus, and the deadweight loss.
Suppose P is regulated at $18 and the government guarantees to purchase any
excess supply to maintain this price level. How much will the government have
to pay? Find the changes in consumer surplus and producer surplus, and the
deadweight loss. If a tax of $2 per unit is imposed, what would be the buyer’s price, the sellers’
price, the number of units sold in the market, the percentage of tax paid by buyers,
the percentage of tax paid by sellers, the changes in consumer surplus and
producer surplus, the government tax revenue, and the deadweight loss? If a subsidy of $2 per unit is granted, what would be the buyer’s price, the sellers’
price, the number of units sold in the market, the percentage of subsidy accrued to
buyers, the percentage of subsidy accrued to sellers, the changes in consumer
surplus and producer surplus, the government cost, and the deadweight loss? 3. Given: C(q) = 0.024q2 + 2535 a.
b.
c. Find VC, FC, ATC, AVC, AFC, and MC. At what range of prices will the ﬁrm earn a positive proﬁt? Suppose the market price of the product is $24 per unit. Find the output that
maximizes the ﬁrm’s proﬁt, and its producer surplus and proﬁt. ...
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 Spring '08
 J.GARON

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