Economics Homework

IVC

Irvine Valley College Homework – Price Searcher

Economics 1

Mark McNeil

There are up to 4 points of extra credit on this homework.

1. The video related to this question is:

https://www.youtube.com/watch?v=qBQJ2EMva2o&list=PLsxTC4tz93GUBgCt5XT_Pu4hAjKyGgneZ&index=1

Quantity (1000's)

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AVC

D

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a. Is this a price taker or a price searcher? How do you know this?

b. Draw the firm’s marginal revenue curve, label it MR.

b. Show (and clearly label) the profit maximizing or loss minimizing output. What is the rule for making the decision about what is the quantity that will maximize profit (or minimize losses)?

c. Show price this firm will charge. What is the rule for what price to charge?

d. Show (and clearly label)the amount of per-unit profit or loss. What is the formula for profit per unit?

e. Show (and clearly label)the area of total profit. What is the formula for total profit?

f. Show (and clearly label)the area of total variable cost.

g. Show (and clearly label)the area of total fixed cost.

2. Given the diagrams for a price searcher

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Quantity

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$

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a. The diagram on the left shows the demand for a firm that must charge one price to all customers. Show the marginal revenue curve for this firm and then show(and clearly label):

the quantity (Q) this firm will want to produce,

the price (P) it will charge,

any consumer surplus (CS),

any producer surplus (PS),

and any deadweight loss.

b. The diagram on the right shows the demand and marginal revenue for a firm that is able to price discriminate perfectly (charge each customer the highest price they are willing to pay). Show this firm’s marginal revenue and then show the

quantity this firm will want to produce,

show (and clearly label) any of the following that exist:

consumer surplus,

producer surplus,

opportunity cost, and

deadweight loss.

3. Assume that you are a producer that is able to price discriminate. The diagrams below show the demand curves for two different groups in your market. Given this information:

a. draw the marginal revenue curves for each group.

b. show how many units will you sell to each group. Label these Qa & Qb respectively.

c. show how much will you charge each group? Label these Pa & Pb respectively.

Group A Group B

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$

Quantity (1000's)

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d. which group’s demand is more elastic? Which is less elastic? Which group will be charged the higher price?

4. The following diagram shows the cost and revenue curves for a firm in monopolistic competition.

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MR

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a. Show the quantity this firm will produce and the price it will charge; label these Q1 and P1. Show and label the area of total profit.

b. Is this a long run or short run price and quantity for this firm? Explain.

c. Draw a separate diagram that shows what will happen in the long run. Explain how this long run price and quantity comes about.

5. Use the Excel file that accompanies this homework to answer the questions on that page.

Please attach the Excel page after the last page of this homework