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Homework 5 Answers - Economics 331 Government and Business...

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Economics 331: Government and Business Homework 5 Spring 2012 Name: _____________ Answer Key _______________________ Instructions: Using your class notes as a guide, answer the following questions. This material is covered in Chapters 10, 11 and 12 of the textbook. The aim of this homework is to assess your knowledge and help you to become familiar with the format for exams. Please answer all questions in the space provided. You may collaborate with other students in the class, but each student must turn in their own answers. This assignment is due on Monday, April 16 th . Late assignments will not be accepted for this particular homework; the answers will be posted on Blackboard shortly after class on the 16 th so that you can use them to study for the 3 rd exam. Problems: Use this information to answer the following problems. A firm produces two goods (the quantities of the two goods are denoted, and ). The demand functions are and . Total cost is given by . Marginal costs are constant, so pricing at marginal costs results in a loss of the fixed costs for the firm. To eliminate this loss, prices must be raised. The regulator is considering three different possible sets of prices: Set 1: and Set 2: and Set 3: and 1. Consider the prices in Set 1. a. What is total revenue under Set 1? What is total cost? Does the firm (approximately) break even?
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