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Practice Problems 1-4

The document contains 6 problems involving concepts like supply and demand curves, costs of production, mortgage calculations, monopoly profit maximization, and production costs. The problems calculate values like equilibrium price and quantity, variable and total costs, maximum affordable home price, monopoly prices and profits with and without discrimination, and optimal production level for profit.

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conkienlua2005
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13 views2 pages

Practice Problems 1-4

The document contains 6 problems involving concepts like supply and demand curves, costs of production, mortgage calculations, monopoly profit maximization, and production costs. The problems calculate values like equilibrium price and quantity, variable and total costs, maximum affordable home price, monopoly prices and profits with and without discrimination, and optimal production level for profit.

Uploaded by

conkienlua2005
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

The linear supply and demand functions of good are given by


P=aQ+b and P=cQ+d
a. State whether each of the values of parameters a, b, c and d are positive or negative.
b. Find expressions, simplied as far as possible, for equilibrium prire and quantity.

2. The total cost of producing 500 items a day in a factory is $40,000, which includes a
fixed cost of $2,000.
a. Work out the variable cost per item
b. Work out the toal cost of producing 600 items a day.

3. You're considering purchasing a new home and feel confident in handling a monthly
mortgage payment of $1000 due at the end of each month. You're eligible for a 30-year
mortgage at a 8% annual interest rate, compounded monthly, on the condition that you
make a down payment of 40% of the home's price. Assuming you have the necessary
savings for the down payment, what is the maximum price range for a home you can
afford?

4. A monopolist firm faces the following cost curve: C(y) = Q2 + 12, where Q is the output
produced. The demand for its product is given by P = 24 - Q.
a. Derive the MR for this firm.
b. Find the price and quantity at which maximum profit is achieved.
c. Find the profit level.

5. A monopolist operates in two markets whose demand functions are


P1=100−Q1

P 2=120−0.5 Q2
The monopolist has a constant marginal cost of $40.
a. Find the prices and market quantities to achieve maximum profit when the
monopolist cannot price discriminate between the two markets.
b. Calculate the price elasticity for each market demand and evaluate it at the price and
quantities derived in a. Based on the calculated elasticity, if the monopolist is allowed
to use price discrimination, which one of the two markets will have a higher price?
c. Find the price and market quantities to achieve maximum profit when the monopolist
can price discriminate between the two markets.
d. Will the consumers in the first market be better off with discrimination or not? What
about the consumers in the second market?
6. A family produces handicraft bags from water hyacinth materials. The main production
cost is labor since the raw materials are readily available in nature. The quantity of bags
produced per day depends on the labor utilization and is presented in the table below:
Marginal
Labor Output Product of Total Costs Average Cost Marginal Cost
(L) (Q) Labor (TC) (AC) (MC)
(MPL)
(1) (2) (3) (4) (5) (6)
0 0
1 20
2 45
3 75
4 110
5 140
6 165
7 185
8 200
9 210
10 215
a. Calculate the marginal product of labor (column 3).
b. Give possible explanation as to why productivity vary in question a. (Hint: apply the law
of diminishing return).
c. If the wage cost is VND 400,000 per day and the fixed cost is VND 2,000 per day,
calculate the daily total production cost (column 4), the average cost (column 5), and the
marginal cost to produce each handicraft bag (columns 6).
d. If the market price is VND 40,000 per bag, how many bags per day should this family
produce? What will be their daily profit?

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