Study Guides (238,159)
Canada (114,972)
ECON 208 (51)

practice problem set3.pdf

2 Pages
Unlock Document

McGill University
Economics (Arts)
ECON 208
Wendy Dickinson

Problem Set 3 Microeconomic Analysis & Applications { (ECON 208) Fall 2011 Week November 14 - November 18 Chapter 9: Competitive Markets 1 Pro▯t Maximization for a Competitive Firm Consider an individual ▯rm that is small relative to the industry in which it sells its product. The ▯rm’s technology is such that its marginal cost (in dollars) is given by: MC(q) = 1 + 5q (1) where q is the ▯rm’s level of output (measured in thousands of units per month). 1. Plot the ▯rm’s marginal cost curve. 2. Suppose that the ▯rm’s average variable costs are such that its shut-down price is $6. Explain in general terms how the ▯rm can compute its shut-down price. 3. If the market price for the product is $11, what is the ▯rm’s pro▯t-maximizing level of output per month? 4. If the market price for the product is $14, what is the ▯rm’s pro▯t-maximizing level of output per month? 5. Explain why a competitive ▯rm’s supply curve is given by its MC curve. 2 What Determines Price? Read carefully the Additional Topic (found on MyEconLab) called The Long-Run Industry Supply Curve. A major theme of this chapter is the role that free entry and exit play in determining a competitive industry’s long-run equilibrium. Keeping this term in mind, think of the following statement: In Industry X, demand and supply do determine price in the short run, but in the long run, only supply matters. 1. Assuming that Industry X is a constant-cost industry, use a demand-and-supply diagram to illustrate why the statement is exactly correct. 2. Now, assuming that Industry X is an increasing-cost industry, show in a demand-and- supply diagram why the statement is not quite correct.
More Less

Related notes for ECON 208

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.