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Chapter

# Intermediate Micro PS2

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School
Department
Economics
Course
ECON 2350
Professor
All Professors
Semester
Winter

Description
Intermediate Microeconomics II. Problem Set #2: Competitive Short-run Firm Equilibrium 1.. Total Variable Cost (VC) = 0.25q + 8q + 3,844 and Fixed Cost (FC) = 24,717 for a firm in a perfectly competitive industry. Costs are measured in \$s. a) What is the shutdown output and price for this firm? b) What is the break-even (0 economic profit or long-run equilibrium) output and price for this firm? c) What is the equilibrium output of the firm if the competitive market price = \$120? d) What is the economic profit (+) or loss (-) at equilibrium output of the firm if the competitive market price = \$120? 2. Total Variable Cost = -2.25q + 0.01q + 441 (note the minus) and Total Fixed Cost = 1863 for a firm in a perfectly competitive industry. Costs are in \$s. a) What is the shutdown output and price for this firm? b) What is the break-even (0 economic profit or long-run equilibrium) output and price for this firm? c) What is the equilibrium output of the firm if the competitive market price = \$4.75? d) What is the economic profit (+) or loss (-) at equilibrium output of the firm if the competitive market price = \$4.75? e) Suppose that P = \$11.79 – 0.0004Q is the demand function of the industry. What are industry output and the number of firms if market price is \$6.75? 3. Suppose there are 120 firms an2 2000 households in a perfectly competitive industry. Each firm has VC = 50q + 0.12q + 19,200 and FC = 24,000. Each household has an individual demand function P = 320 - .q a) What is firm supply? b).What is industry demand? c) What is industry supply? d) What is competitive equilibrium Price and Quantity? e) What is the output of the individual firm? f) What is the producer surplus (operating profit) of the firm? g) What is the economic profit/loss of the firm? h) What is the shut-down price and quantity of the firm? i) What is long-run equilibrium price and output of the firm? j) What is the long-run equilibrium price and output of the industry? k) How many firms in the industry in long-run equilibrium? l) What is the long-run Supply function given that this is a perfectly competitive industry? 4. The table below gives the Marginal Cost (MC), Average Variable Cost (AVC), and Average Cost (AC) at various outputs for a firm in a competitive industry. Price (P) is from the Demand curve for the industry at the total output of all the firms in the industry q 10 20 30 40 50 60 70 80 90 100 110 120 130 MC 10 15 20 25 30 35 40 45 50 55 60 65 70 AVC 17. 15 15. 17.5 19. 21.6 23. 26.2 28. 31 33. 35.8 38.3 5 8 5 9 5 1 4 AC 210 111.2 80 65.62 58 53.7 51. 50.3 50 50.2 50. 51.87 53 5 5 5 4 5 9 5 P 85 82.5 80 77.5 75 72.5 70 67.5 65 62.5 60 57.5 55 a) What is the output of the firm if industry price is \$40? - 1- Intermediate Microeconomics II. Problem Set #2: Competitive Short-run Firm Equilibrium b) What is Price and Output at Competitive equilibrium? c) What is Total Cost at Competitive equilibrium? d) What is Economic Profit or Loss at Competitive equilibrium? e) What is the shutdown price for the firm? f) What is the Economic Profit or Loss at the shutdown Price? g) What is the output of the industry at P = 10? h) What is Price and Output at long-run Competitive Equilibrium? i) What is the Fixed cost of the firm? (1 mark) 5. Which of the following is true? a) Decreasing Average Variable Cost implies decreasing Marginal Cost b) Increasing Average Product implies increasing Marginal Product c) Avera
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