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Unformatted text preview: ECO 3033, Quiz 2, Sample Problems (three problems)
Problem A. Dundee Crocs, Inc. (DC) is a small Aussie crocodiles. Its output consists of two joint products, croc
steaks, which are sold to exotic game restaurants, and oroc
hides, which are sold to producers of leather goods (boots,
purses, etc.). Each time DC prooesses a crocodile, it obtains one hide and 25 crocodile steaks. The hides are sold whole, and
the steaks are sold in boxes of 25. Dundee estimates that the annual demand curve for hides
= 1,000  SPH, while that for steaks'is QB  1,800  lOP
is the number of 25steak boxes sold.) The firm's annuaf tots
cost for the production of the crocs is given by the equation TC _ 100,000 + 40 +.0602 , where Q represents one hide and a box of
steaks. firm that raises is QH
(Q (a) How many boxes of crocodile steaks should DC orgdggg? Mgk—zs a 42:90. W’M/{vr/memﬂ’o
MMC:4%./2@=C¥. WI€5>MQMW
Mm Mlesrmc
/F0:&C?=<(+,/.1CP/‘
/745 3.2g) Qrffo (c) How many boxes of steaks should Dundee Crocs sell, and
what should be its price per box? Q: 5.52)? (g: /X'&*§5’: /a?.5— (d) How many croc hides should Dundee sell, and at what
price per hide? QR: H500; pH '11—‘19 (e) What will be Dundee's total annual profit or loss? 7% 42?, 750+ {0,000 /00,000 “anoﬂg/S’o : r/ééb', a. p Problem B. Chokalot Corp. is the nation’s largest producer of rebuilt automobile
smog pumps to fit cars built by Galaxy Motors (GM). Chokalot typically
charges a standard price for any pump to fit a GM auto. Management
realizes that its industry is characterized by a relatively large number
of smaller firms that are followers in the sense that they will always
charge exactly the price that Chokalot sets. Currently, Chokalot estimates that the monthly market demand curve for
the pumps has the following equation: Qd = 1540 d 159 Chokalot knows that its own monthly total cost can be represented by the
equation TC = 12,000 + 2.50 + .00102. In addition, it has estimated
that the smaller firms’ supply curve can be represented by the equation
as = 40 + 10p. 1. Write the equation for the demand curve facing Chokalot
@—/Coo :L f”; ,0: genera
2. Determine the price that Chokalot will charge and the quantity of output that it will sell. M/QL: 4,4" 05% ': 2.51%,0012QL =ﬂ¢€i
351ng: GAS’; Q“: 7gb ___.—\ M446 3. Determine the quantity that the smaller firms will supply and
the market quantity demanded. _ 3 7 C7
68“ 407L340 :3; Q0? 1‘. 440 470 = //3a
ﬂ 4. Calculate total profit for Chokalot. f _
7);? 2§j§aav/a,wo 489765115: //! 0902.5 0 Problem C. Consolidated Communications of America {CCA) operates in a
non—collusive oligopolistic market where firms tend to base their
strategies on good old—fashioned fear. CCA believes that at its current
price its demand curve will be Q a 3,000 — 20F if it raises price, since
it expects that other firms will not follow a price increase. However,
for price cuts it believes its demand curve is Q = 1,800  10P, since
other firms are expected to follow a reduction in price. 1. with the above assumptions, what are CCA’s current price and
quantity sold? 300a Q0r0= hemMI”
/&,¢9: /.’20a;, ﬂeﬁg
@1312 2. Suppose CCA’s total cost function is: TC _ 3 0 2 AVC=3+.55(6JCD=33
S — 20,000 + Q + . SQYAG: :a'33 Is CCA maximizing its profit at the quantity and price
you found in (1}? Explain why or why not. ﬂQ:éoo/r 1‘43 5,, Qrgowigop _ go chyoo—xoﬂ
pegs—.qu F=/5’°“/d? ﬁle: A?) 0/? m’éjéfo/gjio 777k”
=/§0—éo “70wa 4 ?a>é3>oo, 42y Wis/W. (53/45) 3. Now suppose that CCA has made an error in its estimate of the
total cost function so that the actual total cost is: STC = 20,000 + 7Q + .05o2 with this revised total cost function, what is the firm’s
profit—maximizing price, output, and total profit? m6: 7+,/C(Cw) : /03)' /03 >ﬂ7/e“
I,2 ,411RZ t47g962t 2 /d%72r 7+,/¢cp = Ken/<9
.QQCIF M3 ; @533? 0
P: /§a*27«Sb:/23.S' ...
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This note was uploaded on 04/06/2012 for the course ECO 3033 taught by Professor Truett during the Spring '12 term at University of Texas.
 Spring '12
 Truett
 Economics

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