Answer Key - Problem Set 6

Answer Key - Problem Set 6 - Econ 102 Prof. Akbulut Answer...

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Econ 102 Prof. Akbulut Answer Key - Problem Set 6 (10 points) 1. (2 pts.) Nicholson Ch. 9, Problem 9.1 (a) (b) (c) P S q = 5 P - 50 20 10 50 q 50 * 20 10 2 . 0 20 10 2 . 0 = = + = = + = = q q P MC q q C MC 200 50 500 250 1000 50 50 * 10 50 * 1 . 0 50 * 20 2 = - - - = - - - = - = π C Pq
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2. (2 pts.) Nicholson Ch. 9, Problem 9.2 Profit: Profit with a lump sum tax T: No change in profit maximizing quantity since: Profit with a proportional tax: No change in profit maximizing quantity since: Profit with tax per unit: Profit maximizing quantity changes since: A per unit tax does affect output. MC MR q C q R q T q C q R q C q R = = - - = - - = - = 0 0 ) ( ) ( ) ( ) ( π MC MR MC MR t q q C q R t = = - - = - - = 0 ) )( 1 ( )] ( ) ( )[ 1 ( t MC MR t MC MR q tq q C q R + = = - - = - - = 0 ) ( ) (
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3. (2 pts.) A competitive firm has the following short-run cost function: c(y) = y 3 - 8y 2 + 30y +5 (a) What is the firm’s marginal cost function MC(y)? (b) What is the firm’s average variable cost function AVC(y)?
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Answer Key - Problem Set 6 - Econ 102 Prof. Akbulut Answer...

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