Question

Suppose a perfectly competitive firm has marginal and total costs given by M C = 3 + 2q and T C = 2 + 3q + q2, respectively, where q is the quantity of output produced by the firm. In a monetary union the firm faces a constant price p1 = 9 for its product. Outside of the monetary union with a flexible exchange rate it faces a 50-50 chance of p2 = 11 or p3 = 7. The firm decides on the profit maximizing quantity q by setting p = MC which maximizes its profit π = (p ∗ q) − TC.

(a) What are the firm’s profit maximizing quantity, price and profit in a monetary union? (b) What is the average profit with a flexible exchange rate?

(c) Does more exchange rate certainty in a monetary union lead to higher profits for the firm?

Answer #1

A perfectly competitive firm in the short run has Total Cost and
Marginal Cost functions given by TC(Q)=9+Q+Q2 and
MC(Q)=1+2Q, respectively. The firm faces a price of P=$17.
Determine the output that the firm will produce and the profit.
Show the solution graphically.

A firm serving a market operates with total variable cost TVC =
Q^2. The corresponding marginal cost is MC = 2Q. The firm faces a
market demand represented by P = 40 - 3Q.
a) Suppose the firm sets the uniform price that maximizes
profit. What would that price be?
(b) Suppose the firm were able to act as a perfect first degree
price-discriminating monopolist. How much would the firm’s profit
increase compared with the uniform profit-maximizing price you
found...

A perfectly competitive firm has the following total cost and
marginal cost functions:
TC = 100 +
10q – q2 + (1/3)q3
MC =
q2 – 2q +10
a) For quantities
from 0 to 10 determine: TC, TFC, TVC, and MC.
b) For quantities
from 0 to 10 determine: ATC, AFC, and AVC.
c) Assume P (MR)
equals 45. For quantities from 0 to 10 determine: TR and
profit.
d) At what quantity is
profit maximized?...

Suppose a price-taking firm faces a market price of P = $70 and
has a total cost function given by: TC = 269 + 2Q + Q2.(Q squared)
a. Algebraically derive the firm’s fixed cost, average cost and
marginal cost functions. b. What quantity will the firm produce? c.
Compute the revenues, costs, and profits associated with the
profit-maximizing quantity.

Consider a firm with the demand function P(Q)=(50-2Q), and the
total cost function TC(Q)=10,000+10Q. Find the profit maximizing
quantity. Calculate the profit maximizing price (or the market
price). Hint: MR(Q)=(50-4Q),

The total cost function for a firm in a perfectly competitive
market is TC = 350 + 15q + 5q2. At its profit maximizing
quantity in the short-run, each firm is making a loss but chooses
to stay open. Which of the following is/are necessarily true at the
profit maximizing quantity?
MR = 15 + 5q
P>15
AR > 350/q + 15 + 5q
Both A and B are true.
Both B and C are true.
All of the above...

Suppose Andy sells basketballs in the perfectly competitive
basketball market. His output per day and costs are as follows:
Output per Day (Q)
Total Cost (TC)
0
$10.00
1
$20.50
2
$24.50
3
$28.50
4
$34.00
5
$43.00
6
$55.50
7
$72.00
8
$93.00
9
$119.00
1) Make a table with Quantity (Q), Total Cost (TC), Fixed Cost
(FC), Variable Cost (VC), Average Total Cost (ATC), Average
Variable Cost (AVC), Marginal Cost (MC), and Marginal Revenue (MR)
on it.
2)...

A competitive firm's cost of production q units of output is C =
18 + 4q + q2 . Its corresponding marginal cost is MC= 4
+ 2q.
a. The firm faces a market price p= $48. Create a spreadsheet
with q = 0, 1, 2, ... 30, where the columns are q, R, C, VC, AVC,
MC, and profit. Determine the profit-maximizing output for the firm
and the corresponding profit. Should the firm produce this level of
output or...

Suppose a monopoly firm has the following Cost and Demand
functions:
TC=Q2
P=20-Q
MC=2Q
MR=20-2Q
Carefully explain what the firm is doing and why.
Find the firm’s Profit maximizing Q
Find the firm’s Profit maximizing P.
Find the firm’s Profit.
2. Suppose because of an advertising campaign, which costs $150,
the monopoly’s demand curve is: P=32-Q so its MR= 32-2Q
Looking closely at the TC function and the demand curve,
explain the effects of the advertising campaign on the equations...

1) A perfectly competitive firm that sells fish has a marginal
cost function given by MC = 3q. The market has determined a price
of P = 60. How many fish will this firm produce?
2)See the previous question about the perfectly competitive fish
firm. Suppose that at this level of output, the firm has average
costs of production of ATC = 42. How much total economic profit
will the firm earn?
3) A perfectly competitive firm will shut down...

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