ECON 320 Lecture 2: Econ 320 Classnotes Week 1, class 2, Page 2

78) If the government decides to regulate this market using a “marginal cost pricing" approach, the price and quantity will equal: A) $16; 40 B) $11; 70 C)$10; 40 D) $8; 90 E) $5; 110 se ancies bewys: mm ro Seycom * Moby 30m*. "

The demand equation for widgets has been estimated as QW = 600 - 4 PW - 0.0625 I - 1.25 PR where QW is the quantity demanded of widgets, PW is the price of widgets, I am the average income of dollars of consumers in the market, and PR is the price of gadgets. Holding other factors constant, an increase in average consumer incomes of $400 would produce a change in the quantity demanded of widgets of:

A. - 6.25

B. +575

C. + 6400

D. - 25

E. -6400

1. The manager of a monopoly firm obtained the following estimate of the demand for its product.

Q = 1000 - 100P + 0.2M - 500P_R

where M and PR are, respectively, consumer income and the price of a related good. The forecasted values for M and PR are M = $30,000 and PR = $5.

a. What is the forecasted demand function? ((Show work))

b. What is the inverse demand function? (Show work)

c. What is the marginal revenue function? (Show work)

The estimated average variable cost is

AVC = 40 - 0.08Q + 0.0001Q²

d. To maximize profit the firm should produce ______ units of output.

e. To maximize profit the firm should set a price of ______

f. Check to see if the firm should produce in the short run rather than shut down.

g. Total fixed cost is $5,000. The firm makes a profit (loss) of _____.