Econ 528 Spring 2016 Final Exam: Monopoly Due: April26, 2016, 6PM 1. Hank Yoon i

Question

Econ 528 Spring 2016 Final Exam: Monopoly Due: April26, 2016, 6PM 1. Hank Yoon is the economist in a competitive market. The market price is $35 per item. The total cost equation is , and MC = 2 + Q

a. What level of output of items should you produce in the short run?

b. What price should you charge in the short run?

c. Will you make any profits (Total Revenue minus Total Costs) in the short run?

d. What will happen in the long run? How would your answers change if your costs were and MC = 5 + 60Q

2. Phillip Haynes is the controller of a company that has the sole authority to manufacture your product. The inverse market demand curve is . Your total cost equation is . What is the output you should produce, the price you should charge, and your profits.

3. You are the project executive of a monopolistically competitive firm. The present demand curve is . Your total cost equation is , and MC = 17Q

a. What level of output should you set to maximize profits?

b. What price would you charge?

c. What will happen in your market in the long run? Explain.

Explanation / Answer

a. What level of output of items should you produce in the short run?

Output will be produced till P =MC

35 = 2 + Q

Q = 33

b. What price should you charge in the short run?

Price charged = Market price = $35

c. Will you make any profits (Total Revenue minus Total Costs) in the short run?

No, Since price is equal to MC , so there will be no economic profit

d. What will happen in the long run? How would your answers change if your costs were and MC = 5 + 60Q

In the long run he will continue producing 33 units and sell at price of $35

If MC = 5 + 60Q , then MC > P , for any Q , So firm will shutdown and exit the industry.

For problem 2 and 3 , demand curve and cost equation n't visible in the question,

Ask them as seprate questions one by one.

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