COMPETITIVEMARKETS
Topickalevelofoutputthatmaximisesprofit,afirmmustconsideritscostfunctionandhowmuchitcansellagivenprice.Theamountthefirm
thinksitcanselldependsinturnonthemarketdemandofconsumersandthefirmsbeliefsabouthowotherfirmsinthemarketwillbehave.
T
ECON 201 Microeconomics
-Tutorial #10: Uncertainty and General Equilibrium
Answers
1.
Suppose an individual has personal wealth of $100,000 and faces the prospect
of a 25% change of losing her $20,000 car through theft. Her utility index is
given by .
(a)
ECON 201 Microeconomics
Tutorial #09
Oligopoly
1.
In a homogeneous product duopoly, each firm has a marginal cost curve MC = 10 + qi,
i = 1, 2. The market demand curve is P = 50 Q, where Q = q1 + q2.
(a)
What are the Cournot equilibrium quantities and pri
ECON 201 Microeconomics
Tutorial #11
Externalities and Public Goods
1. Sam is a student living in Mount Eden. He likes having long parties. His parties start
at 9:00pm, and go on for h hours. Sam gets marginal benefit MBsam=6-h from the
length, h, of his
ECON 201 Microeconomics
Tutorial #10
Uncertainty & General Equilibrium
1.
Suppose an individual has personal wealth of $100,000 and faces the prospect of a 25 per
cent change of losing her $20,000 car through theft. Her utility index is given by .
(a) Ass
ECON 201 Microeconomics
Tutorial #08
Monopoly
1.
A monopolist has the cost function TC = 10Q and faces an inverse demand
P(Q) = 70 2Q.
(a)
(b)
(c)
Calculate the monopolists profit-maximising price-quantity combination and
profits.
Suppose this industry op
ECON 201 Microeconomics
Tutorial #05
Cost Curves & Equilibrium
1. A firms production function is given by
Q = mincfw_L, K
Where L = labor and K = capital which are competitively priced at w = $5 and r = $20.
(a) What quantities of labor and capital will p
ECON 201 Microeconomics
Tutorial #07
Competitive markets & Game Theory
1.
Rons window washing service is a small business that operates in the perfectly
competitive market of Auckland. His total cost function is given by TC = 40 + 10q +
0.1q2 where q stan
ECON 201 Microeconomics
Tutorial #04
Production functions & Cost Minimization
1. Consider the production function Q = 2*L1/4*K3/4.
(a)
What kind of returns to scale does this production function exhibit?
(b)
Derive an expression for (i) the Marginal Produ
ECON 201 Microeconomics
Tutorial #06
Competitive Markets
1. A perfectly competitive market is described by the aggregate demand curve Q = 60 2P and
the aggregate supply curve Q = -10 + 5P. A typical firm (and all firms are identical to one
another) in the
ECON 201 Microeconomics
Tutorial #08: Monopoly
Answers
1. A monopolist has the cost function TC = lOQ and faces an inverse demand
P(Q) = 70 * 2Q.
(a) Calculate the monopolists prot-maximising price-quantity combination and
prots.
(b) Suppose this industry
ECON 201 Microeconomics
Tutorial #03
Consumer Choice and Demand
Jake makes his consumption and saving decisions two years at a time. His income this
year (year 1) is $100,000, and he knows that he will get a raise next year (year 2)
making his income $100
ECON 201 Microeconomics
Tutorial #02: Consumer Preferences and Utility
Consumer Preferences and Utility Maximization
1.
Allan Cunningham has complete and transitive preferences over different types of nuts.
He likes cashews more than almonds and almonds m
ECON 201 Microeconomics
-Tutorial #11: Externalities and Public Goods
Answers
1. Sam is a student living in Mount Eden. He likes having long parties. His parties start at
9:00pm, and go on for h hours. Sam gets marginal benefit MBsam=6-h from the length,
ECON 201 Microeconomics
Tutorial #01: Mathematics Review
1.
Graph the following functions for x 0 and y 0.
(a)
(b)
Min cfw_x/a, y/b = c, where a = 5, b = 10, and c = 4;
(c)
xy = c, where c = 100;
(d)
2.
Ax + by = c, where a = 2, b = 5, and c = 100;
y = a
ECON 201 Microeconomics
-Tutorial #09: Oligopoly
Answers
1.
In a homogeneous product duopoly, each firm has a marginal cost curve MC = 10 + qi,
i = 1, 2. The market demand curve is P = 50 Q, where Q = q1 + q2.
(a)
What are the Cournot equilibrium quantiti
ECON 201 Microeconomics
Tutorial #03: Consumer Choice and Demand
2.
Now suppose Suzys utility function for milk and cookies is as follows:
(
(a)
)
Find the equation for Suzys indifference curves, for a constant utility [hint:
Find c as a function of and m
Tutorial #04 Production functions and cost minimization
3. Consider the production function q = . Let the price of labor (w) be $5 per unit and
the price of capital (r) be $20 per unit. Find the least cost way of producing 100 units of
output, i.e. q=100.
ECON 201 Microeconomics
-_._._-_-_-_.-mu._m._-_-_-_-_-_
Tutorial #05: Cost Curves & Equilibrium
1. A rms production function is given by Q = min{L, K} , where L=labor and
K=capital, which are competitively priced at w = $5 and r = $20.
(a) What quantitie
ECON 201 Microeconomics
-Tutorial #07: Competitive markets and game theory
Answers
1. Rons window washing service is a small business that operates in the perfectly
competitive market of Auckland. His total cost function is given by TC = 40 + 10q +
0.1q2
ECON 201 Microeconomics
-Tutorial #02: Consumer Preference and Utility
Answers
1.
Allan Cunningham has complete and transitive preferences over different types of nuts.
He likes cashews more than almonds and almonds more than walnuts. He is indifferent
be
ECON 201 Microeconomics
-Tutorial #01: Mathematics Review
Answers
1.
Graph the following functions for x 0 and y 0.
(a)
Ax + by = c, where a = 2, b = 5, and c = 100;
(b)
Min cfw_x/a, y/b = c, where a = 5, b = 10, and c = 4;
(c)
xy = c, where c = 100;
(d)
ECON 201 Microeconomics
-Tutorial #06: Competitive Markets
Answers
1.
A perfectly competitive market is described by the aggregate demand curve Q = 60 2P
and the aggregate supply curve Q = -10 + 5P. A typical firm (and all firms are identical to
one anoth
The University of Auckland
Department of Economics
ECON 201 Microeconomics Semester Two 2013
TEST: Answer Guide
1.
(a) The first order conditions for maximising utility subject to M = PXX + PYY are
8U(X,Y)/8X XPX = 0, i.e., Y = )th
8U(X,Y)/6Y XPY = 0, i.e
The University of Auckland
Department of Economics
ECON 201 Microeconomics
(Semester 2, 17 September 2013)
TEST
Time allowed: 1 hours.
(Reading time: 5 minutes; writing time: 1 hour 25 minutes.)
Answer all questions.
Total marks: 30: (12 marks for Questio
# 06 : COMPETITIVE MARKETS
EXAMPLE: Short run profit maximization
Consider a firm with
TC = 20 + 20q + q2
The market price (P) is $8
What is the profit maximizing level of output?
What happens if (i) P = $28, (ii) P = $30 ?
EXAMPLE: Long run profit maximi