Homework 3

Homework 3 - Homework 3 Additional Questions: Profit...

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Homework 3 Additional Questions: Profit Maximization 1. Suppose a firm is one of many price taking firms in a competitive market and has the following cost functions (this is all the info you need): tc=4+q 2 mc=2q A. What conditions do we need for the market to be considered a competitive market? B. What will each firm’s demand curve look like in a competitive market? C. Explain why a firm would not want to raise its price above the market equilibrium price or lower their price below the market equilibrium price? D. What is the condition for a firm to maximize profits? What is the intuition behind this condition? E. Suppose that the market price is equal to 2, what is the profit maximizing quantity for this firm conditional on producing a positive quantity? F. Does this firm earn positive profits when the market price is equal to 2? What are these profits equal to? G. Repeat parts E. and F. when the market price is equal to 6? H.
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This note was uploaded on 04/07/2008 for the course ECON 201 taught by Professor Williams during the Fall '08 term at UVA.

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Homework 3 - Homework 3 Additional Questions: Profit...

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