problem4 - (b) Draw a rough graph of average cost (c) If...

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Problem Set 4 Econ 115a October 9, 2007 1. On the top of your answers, prominently put your name, your TA’s name and your section time – without the TA name you may not get credit. (Also, please staple multiple pages!) 2. Define (a) Sunk Cost (b) Increasing Returns to Scale (c) Consumer Surplus 3. Say that the marginal cost function of each of N firms is mc = 5 q, where q is firm output. What is the supply function of the industry? 4. Consider the cost function C ( Q ) = 10 + 2 Q 2 which implies marginal cost of 4 Q . (a) What is the fixed cost of this firm? What is average variable cost?
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Unformatted text preview: (b) Draw a rough graph of average cost (c) If price is 8, what is the average cost of a perfectly competitive firm? (d) Would this firm like to stay in the industry or exit? Does the answer depend on whether the firm can recover its fixed cost on exiting (i.e. whether the fixed costs are sunk?) 5. List at least 4 conditions necessary for “perfect competition.” 6. Is a Pareto Efficient outcome the “best” outcome? Why or why not? 1...
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This note was uploaded on 04/08/2008 for the course ECON 115 taught by Professor Stevenberry during the Fall '07 term at Yale.

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