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Quiz 4 for Intermediate Microeconomic Analysis - Spring 2001 | ECO 3306, Quizzes of Microeconomics

Material Type: Quiz; Professor: North; Class: Intermediate Microeconomic Analysis; Subject: Economics; University: Baylor University; Term: Spring 2001;

Typology: Quizzes

Pre 2010

Uploaded on 08/16/2009

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ECO 3306 Name:
Spring 2001
Dr. Charles M. North
QUIZ #4 (Chapters 23-25)
1. Hammers are sold in a perfectly competitive market with demand represented by the function
ppD 000,20000,600)( = , where p is the market price. There are 1,000 firms producing hammers
in this market, each with technology represented by the short run cost function
000,2
80
1
)( 2+= yycs, where y is the number of hammers produced by the firm. Thus, each firm’s
supply function is ppy 40)( =.
a. (1 point) What is the industry supply function?
ppypS 000,40)(1000)( ==
b. (2 points) What is the equilibrium market price and quantity? 000,400*10*000,40000,20000,600)()( ==== qppppSpD
c. (2 points) How many hammers does each firm produce, and how much profit is each firm
earning?
0000,2)400(
80
1
)400)(10(*)(**
400)10)(40(*)(
2=
+==
==
ycyp
py
π
d. (1 point) Suppose that market demand increases to ppD 000,20000,800)( = . What is the
new equilibrium price and market quantity?
333,533
3
000,600,1
)3/40)(000,40(*
33.13
3
40
*000,40000,20000,800)()(
==
===
q
ppppSpD
e. (2 points) Under this new level of demand, how much will each firm produce? What will
each firm’s profit be?
56.555,1$
9
000,14
000,2
3
1600
80
1
3
1600
3
40
)(
33.5333/1600)3/40(40)(
2
=
==
==
ycpy
py
π
f. (2 points) Draw graphs of the market and a typical firm that summarizes your findings in (a)-
(e).
Q (000)
p $
y
10
13. 33
400 533
MC
400 533
AC
$1,555.56
pf2

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Download Quiz 4 for Intermediate Microeconomic Analysis - Spring 2001 | ECO 3306 and more Quizzes Microeconomics in PDF only on Docsity!

ECO 3306 Name:

Spring 2001

Dr. Charles M. North

QUIZ #4 (Chapters 23-25)

  1. Hammers are sold in a perfectly competitive market with demand represented by the function

D ( p )= 600 , 000 − 20 , 000 p , where p is the market price. There are 1,000 firms producing hammers in this market, each with technology represented by the short run cost function

2 c (^) s y = y + , where y is the number of hammers produced by the firm. Thus, each firm’s

supply function is y ( p )= 40 p.

a. (1 point) What is the industry supply function?

S ( p )= 1000 y ( p )= 40 , 000 p

b. (2 points) What is the equilibrium market price and quantity? D ( p )= S ( p ) ⇒ 600 , 000 − 20 , 000 p = 40 , 000 pp *= 10 ⇒ q *= 400 , 000 c. (2 points) How many hammers does each firm produce, and how much profit is each firm earning?

2

 

p y c y

y p

π

d. (1 point) Suppose that market demand increases to D ( p )= 800 , 000 − 20 , 000 p. What is the

new equilibrium price and market quantity?

q

D p S p p p p

e. (2 points) Under this new level of demand, how much will each firm produce? What will each firm’s profit be?

2

 − =^ ≈ 

py c y

y p

π

f. (2 points) Draw graphs of the market and a typical firm that summarizes your findings in (a)- (e).

Q (000)

p $

y

10

400 533

MC

400 533

AC

$1,555.

  1. The Hungry Heifer is the only steak restaurant for hundreds of miles around. There are two separate

groups of consumers in The Hungry Heifer’s vicinity: the carnivores and the mostly carnivores.

Weekly inverse demand for the carnivores is represented by the function Pc Qc 100

= 30 − , and

weekly inverse demand for the mostly carnivores is represented by the function Pmc Qmc 200

The Hungry Heifer has a constant marginal cost of $5 per steak dinner; there are no fixed costs.

a. (5 points) If The Hungry Heifer can tell the customers apart, what price will it charge to each group? How many steak dinners will each group buy each week? What is The Hungry Heifer’s profit from each group?

Carnivores: 2 100

1

c

c c

c c

c c c c

Q P

Q

Q

Q Q Q

π

π

π

MostlyCarnivores: 2 200

1

c

mc mc

mc mc

mc mc mc mc

Q P

Q

Q

Q Q Q

π

π

π

b. (2 points) If The Hungry Heifer cannot tell the customers apart, what is the inverse demand function for both groups combined?

Q P P P P Q

P Q Q P

P Q Q P

mc mc mc mc

c c c c

c. (3 points) If The Hungry Heifer cannot tell the customers apart, what price will it charge for all steak dinners? How many steak dinners will be sold? What is The Hungry Heifer’s profit?

 − =^ ≈

π

π

π

Q Q P

dQ

d

Q Q Q