Questions - Show your calculations and label all graphs. I am happy to answer clarifying questions.

Q1) A. Freddy's Frankfurters, a perfectly competitive restaurant located in Hotdogville, sells its "Lunch Special" (the only item on the menu) for $6.00. The costs of waiters, cooks, power, food etc. average out to $5 per meal; the costs of the lease and insurance expenses average out to $1.25 per meal. Freddy is producing where MC=MR. What should he do in the short run? (Hint, translate cost into total, fixed, and variable to help you decide.)

A) raise prices to cover average total cost per hotdog

B) close down immediately

C) continue producing at current levels in the short run

D) lower the quantity of hotdog specials he serves

B. What can Freddy do in the long run to make his situation better? Be specific.

Q2) Refer to Table 8.1. Make the following sentence true by filling in both blanks from the options below.

That the firm is _____________ is evident from its __________________.

A) perfectly competitive, increasing total cost.

B) monopolistically competitive, zero economic profits.

C) a monopoly, increasing marginal cost.

D) perfectly competitive, constant marginal revenue.

E) monopolistically competitive, absence of MR/MC at Q = 0.

Q3) The notebook paper industry is perfectly competitive. The minimum average total cost of producing a pack of paper in the long run is $1. The current price of a pack of paper is $0.75. Which of the following statements best describes what will happen in the notebook paper industry in the future?

A) Firms will exit and prices will rise

B) Firm will enter and prices will rise

C) Firms will exit and prices will fall

D) Firms will enter and prices will fall

E) none of the above is expected

Q4) The MBA Roadside chapter on product differentiation highlights two banks, Community First Bank and Bank of Montana. Both banks target customers by tailoring their products to a desired client base. How does this help the firms? Be specific and use economic terminology to discuss the connection between product differentiation and market structure.

Q5) The demand curve and long-run supply curve for carpet cleaning in the local market which is perfectly competitive are given as:

Q_D = 1,000 - 10P and Q_S = 640 + 2P.

The long-run cost function for a representative carpet cleaning firm is: TC = 3q² and long run ATC = 3q, while the long-run marginal cost function is: MC(q) = 6q.

a. If the carpet cleaning business is perfectly competitive, calculate the optimal output for this firm.

b. How many firms are in the local market?

Q6) A. Refer to Figure 10.1. If the firm is not regulated, the price will be set at ________.

A) P2

B) P1

C) P4

D) P3

E) none of the above

B. This model illustrates a _________________________________________. I know this because...

Q7) Under perfect 1st degree price discrimination, consumer surplus

A) is maximized.

B) is less than zero.

C) is greater than zero.

D) equals zero.

Q8) Suzanne sells specialized hair bows to area high school cheerleaders. She is the only hair bow maker using a patented clip that keeps the large bow from sliding out of the girls' hair. Suzanne estimates her elasticity of demand to be -1.2 and her marginal cost is $4. How much should she charge for the bows if she wants to profit maximize?

A) $24

B) $16

C) $8

D) $4

Q9) Trisha's Fashion Boutique sells earrings and pendants. Trisha has two types of customers: teens and adults. Their willingness-to-pay for earrings and pendants are given in the table below.

a. If Trisha bundles the earrings and pendants together, could she increase producer surplus assuming the MC for both products is constant? Explain why or why not.

b. What should the bundle price be if she wants to sell bundles to both customers? __________

Q10) A tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis pro is practicing

A) second-degree price discrimination.

B) fifth-degree price discrimination.

C) fourth-degree price discrimination.

D) first-degree price discrimination.

E) third-degree price discrimination.

B. Assuming the tennis pro is profit maximizing for both segments, what do you know about the marginal revenue for children compared to the marginal revenue for adults? Does the tennis pro prefer one over the other?