ECO 2023 Lecture Notes - Lecture 28: Natural Monopoly, Deadweight Loss, Import Quota
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Answer the following questions pertaining to the graph.
1. What is the shape of the AVC and ATC curves? What economic law accounts for this shape? How do you know this?
2. What is the shape of the MC curve? Why does it have this shape? How do you know this?
3. What do you know about the values of AVC and ATC at the points where MC crosses them?
4. Is the AVC higher than the ATC or lower than it? How do you know this?
5. Is the costs in the short run or the long run? How do you know this?
6. Assume the company above is in a Perfect Competition Industry: If the price of the product is $20 that is sold at, what will be the profits and how many will be sold at that price? Can the company raise the price?
7. Again in a Perfect Competition Industry: What would the profit situation be at a price of $30, how much to sell at that price?
8. With the Perfect Competition industry: What would the profit situation be at a price of $10, how much to sell at that price?
9. What are the characteristics of a perfect competition company and industry?
Following is the complete table -
Q |
FC |
VC (TC-FC) |
TC |
AFC (FC/Q) |
AVC (VC/Q) |
ATC (TC/Q) |
MC (TCn-TCn-1) |
0 |
10 |
0 |
10 |
- |
- |
- |
- |
1 |
10 |
10 |
20 |
10 |
10 |
20 |
10 |
2 |
10 |
18 |
28 |
5 |
9 |
14 |
8 |
3 |
10 |
23 |
33 |
3.33 |
7.67 |
11 |
5 |
4 |
10 |
33 |
43 |
2.5 |
8.25 |
10.75 |
10 |
5 |
10 |
48 |
58 |
2 |
9.6 |
11.6 |
15 |
6 |
10 |
68 |
78 |
1.67 |
11.33 |
13 |
20 |
7 |
10 |
98 |
108 |
1.43 |
14 |
15.42 |
30 |
8 |
10 |
148 |
158 |
1.25 |
18.5 |
19.75 |
40 |
1. Fill in the table below.
Q |
FC |
VC |
TC |
MC |
AFC |
AVC |
ATC |
0 |
Ā | Ā |
20 |
- |
- |
- |
- |
1 |
Ā |
1 |
Ā | Ā | Ā | Ā | Ā |
2 |
Ā | Ā | Ā |
3 |
Ā | Ā | Ā |
3 |
Ā | Ā | Ā | Ā | Ā |
4 |
Ā |
4 |
Ā | Ā | Ā | Ā | Ā | Ā |
12 |
16. Government Motors can produce cars according to the following schedule.
Labor |
Total Product |
Average Product |
Marginal Product |
0 |
0 |
- |
- |
1 |
? |
3 |
? |
2 |
? |
? |
4 |
What is the average product of labor when 2 units of labor are used in production?
(a) 4
(b) 3.5
(c) 7
(d) 1.5
17. Suppose demand is given by the equation QD = 12-3P. What is the price where demand is exactly unitary elastic?
(a) 1
(b) 2
(c) 3
(d) 4
18. When the price of good A is $20, the quantity of good B purchased is 400. When the price of good A is $40, the quantity of good B purchased is 750. Using the midpoint rule, the cross-price elasticity of demand between goods A and B is
(a) -0.91 and the goods are complements
(b) 0.91 and the goods are substitutes
(c) 1.10 and the goods are substitutes
(d) -2.20 and the goods are complements