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**Economics 412 Assignment #4 and 5**

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Assignment #4 Summer 2017 Due: Class time, June 6, 2017 1. A perfectly competitive firm sells its product for $170/unit and has a total cost of production given by: C(Q) = 50Q+2.5Q2 +400. a. What are this firm’s fixed costs? Explain. b. Determine this firm’s profit maximizing level of output. c. Determine this firm’s profits. d. Calculate this firm’s average total costs at its profit maximizing level of output. e. Calculate this firm’s profit per unit. f. Calculate this firm’s variable costs at its profit maximizing level of output. 2. A perfectly competitive firm sells its product for $200/unit and has an average total cost of production given by: ATC(Q) = 1500/Q + 40 +5Q . a. What are this firm’s fixed costs? b. Determine this firm’s profit maximizing level of output. c. Calculate this firm’s profit. d. Should this firm produce in the short run? 3. Using two diagrams draw the TR, TC, VC, P, AVC, ATC, MR, and MC curves for a firm earning losses yet wishing to produce. Clearly identify the profit maximizing level of output and profits in both diagrams. Clearly identify the size of losses in both diagrams. 4. The typical long-run average cost a firm in the perfectly competitive widget market reaches its minimum average cost at $35/unit at 10,000 units. Draw the long-run market supply curve. Assume that factor prices do not change as the industry expands or contracts. Assignment #5 Show all work. 1. Suppose a monopoly faces a demand function given by: P = 100 – 0.5Q and a total cost function given by: C(Q) = 400 + 10Q + 0.25Q2 a. Find this firm’s profit maximizing level of output and price as well as its profits. b. What would be the socially efficient level of output for this market? What price would be charged for this output if the government regulated this firm to produce this output? What was the level of social welfare loss that occurred at the profit maximizing level of output? 2. The Nuiopoly Fish Sauce Company sold 10,000 bottles when it charged $5 per bottle. When the firm raised its price, it noticed that its total revenues became $50,585. Determine whether this company’s price elasticity is elastic, inelastic, or unit elastic. Explain. 3. Pricing Questions a) A 75% markup on cost is equivalent to a markup on price of: b) A 75% markup on price is equivalent to a markup on cost of: c) If a firm charges a price of $6 for a product with a cost of $2, the markup on price equals: d) If marginal cost is $18 and the price elasticity of demand is –4, the optimal price is: e) If a firm’s price elasticity of demand equals –6, then the optimal markup on price equals: 4. Gwyneth Puppy Supplies sells its high quality puppy treats in the United States and England. Its puppy treats sell for price PU in the United States and for PE in England. The price elasticity of demand for these treats is –2 in England and – 5 in the United States. The cost of producing treats for both countries is equal. a. In which country should Gwyneth charge a higher price? Explain in words solely using the elasticities. b. How much higher should that price be? Explain. (Compare the size of PE and PU. Is one twice as large for example? Or three times as large? Do not use markups in the explanation.)

**Economics 412 Assignment #4 and 5**

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