ECON HW

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Final Exam

For all the questions below, you need to show as much in detail as possible the process or the reasoning by which you arrive at the answer.

Question 1. (10 points) Which characteristic makes a monopolistically competitive firm monopolistic?

Question 2. (10 points) What is the difference between a monopolistic market and a monopolistically competitive market from a long-run perspective?

Question 3. (10 points) What is the difference between a perfectly competitive market and a monopolistically competitive market in terms of the immediate consequence of the entry by new firms?

Question 4. (20 points) Consider the following cost information for a firm that operates in a perfectly competitive market.

Q (quantity of output)

Total cost ($)

0

6

2

26

4

36

6

50

8

68

10

90

12

118

(1) Suppose that the market price is $9. Find the quantity of output that the firm should produce in the short run.

(3) Suppose that the market price drops from $9 to $7. Find the quantity of output that the firm should produce in the short run.

Question 5. (30 points) Consider a competitive firm whose cost is given by

C = 60 + 2Q + 4Q2 .

The product sells at $26 per unit.

(1) Find the optimal quantity of output in the short run.

(2) Evaluate the profitability of the optimal quantity of output that you found in (1). If it is a loss, make a decision whether or not the firm should shut-down. Provide a reason for your decision.

(3) What long-run adjustments should you expect? Explain.

Question 6. (20 points) Consider a monopolistically competitive firm whose cost is given by C = 2 + 2Q + Q2, and its demand function is given by

Q =32 – 4P.

(1) Find the optimal price and quantity of output in the short run.

(2) What long-run adjustments should you expect? Explain.

1

1

Final Exam

For all the questions below, y

ou need to show as much in detail as possible

the process

or the reasoning

by which you arrive at the answer.

Question

1.

(

10 points) Which characteristic

makes

a monopoli

sti

cally

competitive firm monopolistic?

Question 2.

(10 points) What is the differ

ence between a monopolistic market

and a m

onopolistically competitive market

from a long

-

run perspective?

Question

3.

(10 points) What is the difference betw

een a perfectly competitive

market

and a monopolist

ically competitive mar

k

e

t

in terms of

the immediate

consequence of

the

entry by new firms?

Question 4

.

(2

0 points) Consider the following cost information for a firm that

operates in a perfectly competitive market.

Q

(quantity

of

output)

Total

cost

($)

0

6

2

26

4

36

6

50

8

68

10

90

12

118

(1

)

Supp

ose that the market price is $9

. Find the

quantity of output that the

firm should produce in the short run.

(3)

Suppose that

the market price drops from $9

to $7

. Find the quantity of

output that the firm should produce in the short run.

Question

5

.

(3

0 points) Consider a competitive firm whose cost is given by

C = 6

0

+ 2

Q + 4

Q

2

.

The product sells at $2

6

per unit.

(1) Find the optimal quantity of output in the short run.

1

Final Exam

For all the questions below, you need to show as much in detail as possible

the process or the reasoning by which you arrive at the answer.

Question 1. (10 points) Which characteristic makes a monopolistically

competitive firm monopolistic?

Question 2. (10 points) What is the difference between a monopolistic market

and a monopolistically competitive market from a long-run perspective?

Question 3. (10 points) What is the difference between a perfectly competitive

market and a monopolistically competitive market in terms of the immediate

consequence of the entry by new firms?

Question 4. (20 points) Consider the following cost information for a firm that

operates in a perfectly competitive market.

Q

(quantity

of

output)

Total

cost

($)

0 6

2 26

4 36

6 50

8 68

10 90

12 118

(1) Suppose that the market price is $9. Find the quantity of output that the

firm should produce in the short run.

(3) Suppose that the market price drops from $9 to $7. Find the quantity of

output that the firm should produce in the short run.

Question 5. (30 points) Consider a competitive firm whose cost is given by

C = 60 + 2Q + 4Q

2

.

The product sells at $26 per unit.

(1) Find the optimal quantity of output in the short run.