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    Thoery of The Firm

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    Kin
    This document contains practice questions for an economics course. Section I contains questions about marginal cost, the relationship between long-run and short-run average cost curves, the differences between short-run and long-run, diminishing marginal product, marginal revenue equaling average revenue and price in perfect competition, and using the long-run average cost curve to determine optimal firm size. Section II contains questions about profit maximization for a carpet cleaning business and two additional situations.

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    Thoery of The Firm

    Uploaded by

    Kin
    186 views2 pages
    This document contains practice questions for an economics course. Section I contains questions about marginal cost, the relationship between long-run and short-run average cost curves, the differences between short-run and long-run, diminishing marginal product, marginal revenue equaling average revenue and price in perfect competition, and using the long-run average cost curve to determine optimal firm size. Section II contains questions about profit maximization for a carpet cleaning business and two additional situations.

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    Thoery of the Firm

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    Thoery of the Firm

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    This document contains practice questions for an economics course. Section I contains questions about marginal cost, the relationship between long-run and short-run average cost curves, the differences between short-run and long-run, diminishing marginal product, marginal revenue equaling average revenue and price in perfect competition, and using the long-run average cost curve to determine optimal firm size. Section II contains questions about profit maximization for a carpet cleaning business and two additional situations.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    186 views2 pages

    Thoery of The Firm

    Uploaded by

    Kin
    This document contains practice questions for an economics course. Section I contains questions about marginal cost, the relationship between long-run and short-run average cost curves, the differences between short-run and long-run, diminishing marginal product, marginal revenue equaling average revenue and price in perfect competition, and using the long-run average cost curve to determine optimal firm size. Section II contains questions about profit maximization for a carpet cleaning business and two additional situations.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Econ2010 – Practice Assignment #5

    SECTION I.

    1. Define marginal cost. Why does marginal cost eventually increase as total product
    increases?
    2. What is the relationship between the long-run average cost curve and the short-run
    average cost curves? What do economies of scale and diseconomies of scale have on the
    shape of the long-run average cost curve?
    3. What are the two main differences between the short-run and long-run? Why does
    diminishing marginal product exist in the short-run, but not the long run?
    4. Why is marginal revenue equal to both average revenue and price in a perfectly
    competitive setting?
    5. Why can't a perfectly competitive firm influence industry price?
    6. How can the shape of a firm's long-run average cost curve determine the optimal size
    of the firm?

    SECTION II.

    1. Jennifer's Carpet Cleaners has fixed costs of $100 per month and a total cost curve
    as given in the table below. Output is the number of carpets cleaned. Given this data,
    answer
    the questions below.

    Output Total Cost


    10 $200
    20 $320
    30 $460
    40 $620
    50 $800
    60 $1000
    a. The current price for cleaning a carpet is $18. How many carpets must be cleaned to
    maximize profits? What will the profit be?
    b. Suppose the price falls to $14. Calculate the profit-maximizing output and the total
    profits.

    6. For each of the following two situations, determine: i) Profit-maximizing output level,
    and ii) total profits

    A. Fixed costs = $40,000; price = $600


    Output Total Cost Marginal Cost
    100 $80,000
    200 $120,000
    300 $170,000
    400 $230,000
    500 $300,000
    600 $380,000
    700 $470,000

    B. Fixed Costs = $0; price = $80

    Output Total Cost Marginal Cost


    1 $40
    2 $90
    3 $150
    4 $210
    5 $280
    6 $360
    7 $450
    8 $550

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