Question

The market for bobble head dolls in Madison is competitive and has the following demand
schedule:

Price Quantity Demanded

1 200
2 190
3 180
4 170
5 160
6 150
7 140
8 130
9 120
Each producer in the market has fixed costs of $9 and the following marginal cost:
Quantity Marginal Cost
1 1
2 3
3 5
4 7
5 9
6 11
7 13

13.1 (A)

The total cost for each firm when they make 2 bobble heads is:

		A.  12
		B.  9
		C.  17
		D.  3
		E.  13

(B)

The price of a bobble head is $9. How many bobble heads are sold?

		A.  This cannot be determined from the information given.
		B.  120
		C.  0
		D.  150
		E.  5

C)

The price of a bobble head is $9. How many bobble heads does each firm produce?

		A.  120
		B.  This cannot be determined from the information given.
		C.  5
		D.  10
		E.  3

D) The price of a bobble head is $9. How many firms are there?

		A.  40
		B.  This cannot be determined from the information given.
		C.  24
		D.  1
		E.  0

(E) Is the situation described above a long-run equilibrium?

		A.  No
		B.  Yes
		C.  This cannot be determined from the information given.

Answer 1

13.1

(A)

Fixed cost is $9 and variable cost when Q=2 is 2*4=8 because the variable cost is the sum of marginal cost till the output produced.

Total cost= fixed cost+ variable cost =9+8 = $17

The correct option is (c)

(B)

if the price of the good is $9, output sold is at P=MC=9 at 5 units of output.

the correct option is (e)

(C)

Each firm produces bobble heads at P=MC=9 at 5 units of output.

the correct option is (c)

(D) The number of firms can be determined by dividing market demand by the demand of each firm at the given price and it will be 120/5 = 24

the correct option is (c)

(E) This is not a long run equilibrium because in that case, price equals the minimum level of average total cost.

the correct option is (a)