(12 Points)

You are operating a firm in a perfectly competitive market.  In the short run, you have fixed costs of $30.  Your variable costs are given in the following table:

Q

TVC

0

0

1

70

2

120

3

150

4

190

5

270

6

360

Complete the following table:

Market Price

Profit maximizing
level of output

Profit

$48

 

 

$52

 

 

$75

 

 

$85

 

 

 

2.

(10 Points)

A monopolist faces a demand curve given by:

P = 105 – 3Q, where P is the price of the good and Q is the quantity demanded.  The marginal cost of production is constant and is equal to $15.  There are no fixed costs of production.

A) (2 points) What quantity should the monopolist produce in order to maximize profit?

B) (2 points) What price should the monopolist charge in order to maximize profit?

C) (2 points) How much profit will the monopolist make?

D) (2 points) What is the deadweight loss created by this monopoly (hint: compare the monopoly outcome with the perfectly competitive outcome).

E) (2 points) If the market were perfectly competitive, what quantity would be produced?

 

 

 

3.

(6 Points)

List the three conditions that must be met in order for a firm to successfully engage in price discrimination.

4.

(12 Points)

Suppose a competitive firm can sell its output for $6 per unit.  The following table gives the firm’s short run production function.

Labor

Output

0

0

1

20

2

50

3

90

4

110

5

120

6

124

In the table below, you will determine several points on the firm’s demand curve for labor.  To do this, you must determine how many workers the firm should hire for different values of the wage rate in order to maximize profit.  Complete the table below:

Wage Rate Per Worker

Quantity Demanded of Workers

$50

 

$80

 

$100

 

$150

 

 

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