Chapters%205%20%26%206%20Practice%20A

# Chapters%205%20%26%206%20Practice%20A - Chapters 5 6...

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1. A firm faces the following demand and total cost schedules, with all quantities listed on a per- month basis. Suppose that it is required to produce a whole number of items each month. Demand Total Cost P Q Q TC \$20 1 1 \$5 18 2 2 15 15 3 3 30 12 4 4 50 8 5 5 75 a. How much does the firm produce, and at what price? How do you know? b. Suppose that the firm is subject to an excise tax of \$5 per item sold. How much does it produce, and at what price? How do you know? c. Suppose, instead, that the firm is subject to a tax of \$20 per month, regardless of how much it produces. How much does it produce, and at what price? How do you know? d. Suppose, instead, that the firm is subject to a tax of \$25 per month, regardless of how much ir produces. How much does it produce, and at what price? How do you know? (HINT: You have to figure out MR and MC before you can answer these questions. MC may or may not change between parts a, b, c, and d.) 1

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i. marginal product is highest ii. AP = MP iii. MP = 0 3. Amalgamated SteelWorks has the following production function: Q = (0.25×K×L) 1/2 (which can be written equivalently as Q = 0.25 1/2 ×K 1/2 ×L 1/2 ) (note: X 1/2 = X ) The wage rate is \$60 and the rental rate of capital is \$200.
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Chapters%205%20%26%206%20Practice%20A - Chapters 5 6...

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