Q1... microeconomics

Exercises Question 1 ("Review of Production and Cost Functions, and Prot Mardoiization} Suppose each worker costs $1130 to hire. An example firm has the following production and cost schedule. L ll 16 625 [d] {e} 10 1. Fill in the blanks {a}, (b), {c}, (d), and (e). Then nd the amoLu'It of fixed cost for this rm. 2. Ifthe market price is $10, this firm should [produce units / shut down ] to maximize the profit of 5 . If the market price is $9.5, this firm should [produce Lu1its f shutdown], the prot is $ Question 2 ("Profit Maximization in the Short-run] The graph below shows the production cost curves of a rm in a perfectly competitive industry. Ma rgiml Cost .15 sh mud Average Total Cost Average Variable Cost 35 40 Output What is the amount of fixed cost for this firm? 2. If the current market price is $30, what is the quantity this firm should produce? 1Will the rm make {economic} prot at suffer loss? How much? Should the rm shut down? What is the break-even price for this rm? What is the shut down price for this rm? Suppose this rm is f'u'led by $1130] due to pollution violation while the market price remains the same at $30, this results in the average variable cost to [ increase j remain unchanged ], the average total cost to [ increase 3' remain unchanged ], and the marginal cost to [increase I remain unchanged ].Tl1.eret'ore, this firm should [ produce 35 units} shut down]. 5. {Bonus} Revert to the original scenario, figure out what is the total variable cost when the output is 4|] Lu'Iits. II PF\" Business Learning Center - Econ 10'] ("l-Iansen} Session 1|] (October 26, 2015) Tutor: Kanit Kuevibulvanich Question 3 ("Equation Questions for Shutdown and Breakeven Points in the Short-run} Consider the following production cost information of a rm Total cost: TC = a]: + 5g + 25 Marginal cost: MC = 21; + 5 Average total cost: ATC = q + 5 + 25ft; What is the breakeven price? What is the price below which the rm should shut down its operation? (Hint: You still need to nd total variable cost) Question 4 (Equation Questions for Short-run vs. Long-run) Continuing from Question 3, assume that all rms - incumbent and prospective entrant - have the same cost structure Total cost: TC = q? + 55] + 25 Marginal cost: MC = 2:; + 5 Average total cost: ATC = q + 5 + 25ft; Furthermore, the market demand is given by P = 10.5 - Q 1. If the current market price is $45, what is the quantity each rm should produce to maximize its prot? 2. What is the size of the industrj.r with current market price of $45? That is, how many rms are there in the short-run? 3. Given the current market price of$45 in the short-run, the profit ofeach firm is positive. What do you expect to happen in the long-run? What is the breakeven price of each firm? If there are new firms entering the industry in the long-um, what is the quantity produced by all firms in the market? 6. How many rms are there in the industry in the long-run and how many units each rm is producing? 17. Given the number of firms in the long-run found in above sub-question, what is the industry supply curve? 541.\"; Exercises Question 1 (Profit Maximization in the Long-Run) In a perfectly competitive industry, all firms face the cost structure and market demand as depicted below. P ($)A MC Market Demand Price ($) Quantity 6 140 5 180 ATC 200 240 2 270 5 1. If the current market price is $5, then each firm will produce units, and there are firms in the industry. What is the long-run equilibrium number of firms in this industry? What is the quantity produced by each firm in this long-run equilibrium? Question 2 (Short-Run vs. Long-Run: Conceptual Question) Each worker (L) costs $10 to hire, each unit of capital (K) costs $10 to rent. The following table denotes the combinations of capital and worker mixes for a representative firm to produce certain quantities of good: L K TC AC 100 20 20 400 200 60 20 800 200 30 30 600 1. What should a firm do in the short-run if it wishes to increase the production from 100 units to 200 units? Why? 2. What should a firm do in the long-run if it wishes to increase the production from 100 units to 200 units? Why? Relate the difference between short-run and long-run average cost curves in light of answers in part 1 and 2. 4. Can you tell if the firm is experiencing increasing, decreasing or constant returns to scale? Business Learning Center - Econ 101 (Hansen) - Session 11 (October 28, 2015) Tutor: Kanit Kuevibulvanich Question 3 (Long-Run Average Cost Curves and Profit Maximization) COST INDUSTRY REPRESENTATIVE FIRM MC1 ACI LRAC MC2 AC2 15 12 400 600 20 40 50 Each firm has the ability to choose Scale 1 or Scale 2, denoted by MC1, AC1 and MC2, AC2, respectively. Consider the industry demand-supply curve and the cost structure of a representative firm and answer the following questions: 1. Suppose the current market price is $15, then each firm would produce units, and there are firms in the industry. Each firm earns an economic profit of . What would happen in the long-run? 3. How many firms are there in the long-run?Exercises Question 1 (Numerical examples) In this industry, all firms operate using the same production function. All firms hire workers in the perfectly competitive labor market and sell goods in the perfectly competitive goods market. Suppose a representative firm has the production function exhibited in the following table: Quantity of Total Labor (L) Product (Q) 0 1 40 2 70 3 90 4 105 5 115 6 120 Suppose the current wage is $100 per worker and the price of goods is $10 per unit. How many workers should each firm hire? 2. Suppose there are less people willing to work, causing the wage to increase to $200, and as a result, each firm is now hiring 4 workers, what must have happened to the price of goods for such equilibrium? 3. Instead, suppose better technology doubles the output produced by any firms, it is expected that the demand for labor would [ increase / decrease ], causing the wage in the labor market to [ increase / decrease ]. Question 2 (Two factors of production) You are the owner of a manufacturing company using capital and labor to produce goods. Currently you are hiring 200 workers and renting 100 machines. Through competitive factor markets, the wage (price of labor) is $20 per worker and the rent (price of capital) is $10. The 200th worker brings 40 units of output to the production, while the 100th machine brings 30 units of output to the production. This good sells for $20 per unit in the perfectly competitive market. 1. State the optimal rules for the choice between hiring labor and renting capital. (Hint: Recall the bang-for-the-bucks) 2. Is the current levels of labor and capital the most profitable? If not, should you hire or fire workers? Should you rent more or less capital? Question 3 (Factors complementarity and substitutability) A car manufacturer uses assembly robots, which are complementary with robot technicians and substitutable with hand-made workers. An increase adoption of assembly robots used will: [ increase / decrease ] demands for robot technicians. [ increase / decrease ] demands for hand-made workers. In the aspects of marginal products, this increased adoption of assembly robots used will: [ increase / decrease ] marginal products of assembly robots. [ increase / decrease ] marginal products of robot technicians