Calculations and graphs in Microeconomic. ( perfectly competitive and monopoly firms )

Ass#4 ECON 2301 Fall 2014-15

**This assignment is either an individual or a group assignment of 2-3 students. You may choose to submit it as individual or group of 2-3 students.

****The due date to submit the assignment is Sunday, Dec 28, 2014

All graphs must be hand drawn not done by computers.

Homework answers can either be handwritten clearly with blue or black ink or typed. PENCILS are not corrected at all.

Answer the following questions and problems:

I . In a perfectly competitive firm, given the following data about firm (A):

PA = $ 26 TFC = $880,000

MC = $26 AC = $30

Q = 100,000 units

a. Given this data, can we say that this firm is achieving its maximum total profits objective at this given P and Q? If yes or no, explain how did you conclude your answer? If no, what are the appropriate P and Q to say that this firm is achieving its maximum total profits?

b. IF Firm (A) is achieving its maximum profit level, what is the profit position of this firm –that is calculate this maximum total profits-, and what economic advice would you give this firm?

c. Draw corresponding graph of the above operating situation of Firm (A) above?

II. Firm (X) is one of many small firms that produce Cotton in Egypt. This season, due to good weather, Cotton- production was tremendous and huge. This huge production has resulted in decreasing the market price of 1 ton of cotton from $2500 to $2300.

At this new price, Firm (X) operates with the following data for this season:

TC = $720,000, TFC = $180,000, Q (quantity of production & sales) = 120 tons of cotton.

Assume that the firm’s objective is to maximize its total profits, and given the above data, answer the following questions:

a. What is the market structure of Firm (X), identify (Name) this market and explain your reasoning showing why and based on what characteristics you selected this market structure? (provide at least 2 reasons or characteristics why did you name this market for Firm(X))

b. Calculate Total Maximum Economic Profits of firm (X)?

c. What advice would you give this firm as to its position and operations in the market, explain your answer?

d. Given all the above information, draw the graph that represents the above situation of firm (X)?

III. In a monopoly, given the following data about a monopolist, firm (X):

P x = $80 MR = $68 Q= 240,000 units

TFC = $ 2,160,000 AC = $72 MC = $68

a) Given this data, can we say that this firm is achieving its maximum total profit objective at this P and Q? If Yes or No, please explain and prove your answer using the above numbers?

b) If firm (X) is achieving its maximum profit level, what is the profit position (that is calculate Total Profits) of this firm, and then what economic advice would you give this monopolist?

Draw the operating situation of this monopoly.

c) If this firm (X) turned to become a perfectly competitive firm where P changes to become $78, as an economic consultant, with all the other above data and numbers remain unchanged (same), what would be your economic advice to this perfectly competitive firm. Explain and verify your answer using calculations.

Draw the above operating situation of Firm(X) as a perfectly competitive firm.

Good Luck