Q1. Suppose the demand for a product is given by QD = 50 - (1/2)P.
a) Calculate the Price Elasticity of Demand when the price is $60.
b) What price should the firm charge if it wants to maximize its revenue?
c) Over what price range is demand elastic?
Q2. Complete the following table:
|
Quantity
|
FC
|
VC
|
TC
|
AFC
|
AVC
|
ATC
|
MC
|
|
0
|
30
|
0
|
30
|
------
|
------
|
------
|
------
|
|
1
|
|
|
50
|
|
|
|
|
|
2
|
|
|
|
|
17.5
|
|
|
|
3
|
|
|
|
|
|
|
10
|
|
4
|
|
|
|
|
|
26.25
|
|
|
5
|
|
120
|
|
|
|
|
|
Q3. Suppose a firm's production function is given by Q = L1/2*K1/2. The Marginal Product of Labor and the Marginal Product of Capital are given by:
MPL = K½/2L½, and MPK = L½/2K½.
a) If the price of labor is w = 36, and the price of capital is r = 64, how much labor and capital should the firm hire in order to minimize the cost of production if the firm wants to produce output Q = 36?
b) What is the firm's Total Cost function TC(Q)?
c) What is the firm's marginal cost of production?
Q4. Suppose in the short run a perfectly competitive firm has variable cost = 3q2, and MC = 6q where q is the quantity of output produced. Also, the firm has fixed cost F = 3200.
a) If the market price of the product is 198, how much output should the firm produce in order to maximize profit?
b) How much profit will this firm make?
c) Given your answer to b), what will happen to the market price as we move from the short run to the long run?