07Quiz2Hassani - Name Elements of Microeconomics Professor...

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Name: Elements of Microeconomics Professor Hamilton Spring 2007 Quiz #2 1. Let’s examine the Widget industry. There is a fixed cost of $600 that each firm pays to begin production. After that, the cumulative variable cost of each unit produced is given in the table below (average variable costs and marginal costs have also been given to save you some calculations, but not all the columns may be necessary to solve the problems): Output Total Variable Cost Average Variable Cost Marginal Cost 1 100 100 100 2 300 150 200 3 600 200 300 4 1000 250 400 5 1500 300 500 6 2100 350 600 (a) If the price of Widgets is $550, what is profit-maximizing output (in the short run)? (b) What is profit? (c) If the price of a Widget is $350, will new producers enter the market? How about if the price is $450? $550? (d) In the long-run, what will be the equilibrium price for Widgets and why? (e) Firms can pay $X to upgrade production. After the upgrade, they will face costs given below: Output Total Variable Cost Average Variable Cost Marginal Cost 1 100 100 100 2 250 125 150 3 480 160 230 4 840 210 360 5 1250 250 410 6 1740 290 490
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