Question

(1)A firm in a perfectly competitive market sells all its product (Q) at a constant price (P) of $60. Suppose the total cost function (TC) for this firm is described by the following equation: 2 3 Q TC(Q) = 128 +690-140 (a)Form the profit function and determine the output that maximizes the firm's profit. Evaluate the second order condition to assure that profit is maximized at this level of output. (b)Derive the marginal revenue (MR) and the marginal cost(MC). Graph both curves for Q 1, ....12 Use the graph to find the level of output that maximizes the firm's profit. (c )Solve algebraically for the profit maximizing output using the MR and MC derived in part (b). (d)How much profit/loss does the firm earn by producing the profit maximizing output? (2)The following equations describe the market for commodity X. (1) Q(p) 10+3P 2 (2) Qlp) 15-2P (a)Which of the two equations is the demand equation and which is the supply equation? Explain. (b)Find the equilibrium price and the equilibrium quantity transacted in this market. (c)Find the price elasticity of demand at equilibrium and comment on how the firm could use this information if it considers a price adjustment that seeks to maximize its total revenue. (d) Suppose the adoption of a new technology improves the efficiency of producing this product by 3 units, what would be the impact of the new technology on equilibrium price and equilibrium quantity transacted in this market? (e)Assume a supply shock (prior to the adoption of the new technology) pushes the price of this product $0.75 above equilibrium, comment on the state of instability in this market. (3)Use appropriate graphical illustrations to show how each of the following affects the equilibrium price and the equilibrium quantity in the market for commodity Z. Explain each diagram. (a)A favorable shift in consumer preferences for this product. (b)A significant increase in the minimum real wage paid for the use of labor resources. (c)A fall in the price of commodity Y considered to be a substitute for commodity Z. (d)A severe weather condition that negatively impacts the production and the supply of commodity Z

Answer 1

Page Date T L Profit function = Revanue Costa E 60R -( 128 +690-140+(?) 62. - 1289-640 1ha2-03 Profit EL -128 . cus 90 +1402-PP = -9 + 280-30² Os - 9 +282-392 280 ot qo 270- +9=0 30(0-1)-1 (0-9) 20 1. 30-1 (0-9) -0 - in-Deq_and Do į di = 28 -60 plet s ha ag and Dal = 28 -9067 28 sh - 26 = 28.2 26

Page Date :. When Q = 9 muximum the profit will be profdita -128-go tihotro 128 - 9601) + 14 (9)²-(9) 5 1280 & 1134 - 729 LE [1961

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in TR MR profit 3 TC 60 120 180 240 300 360 MC 184 218 236 244 248 254 268 296 11 12 13 14 15 420 480 344 540 500 10 48 74 106 144 660 418 524 668 11 12 720 13

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