(a) A perfectly competitive firm uses one variable and one fixed factor of production to make a single product. The price of the fixed factor rises by 10%, the price of the variable factor by 5% and the price of the good by 5%. In the new situation will the firm produce more, less or the same amount as it did before? Show your reasoning. (b) A monopolist operates under a production technology which allows the production of any output level at a constant average cost of $5 per unit. This monopolist sells into two distinct markets the demand curves for which are: Q1 = 55 – P1 (for market one) and Q2 = 70 – 2P2 (for market 2). If this monopolist operates so as to maximize total profit then calculate: (i) Total output; (ii) The quantity sold in each market; (iii) The price charged in each market; (iv) The monopolist’s total profit. (c) Consider a firm that operates in a monopolistically competitive market. Suppose that the firm has a long-run total cost function of the form: C = 0.001Q3 – 0.425Q2 + 85Q where Q is output and C is total cost. Suppose the demand curve faced by the firm is given by: Q = 300 – 2.5P Calculate the long-run equilibrium price and quantity for this firm. it would be greatly appreciated, any sort of help would be good. thnx
i take it this is like ur hw/assignment? u should at least have a go and put ur answers up and get other ppl to see whether they agree/disagree with it i'm sure many of us can give u general answers, whether its exactly the "perfect" answer, who knows... but using common sense, u can already work out a lot of it...
well something for the above, i think its a lil unclear, need clarification but i assume its saying something among the lines of theres 2 parts to making the product (theres a fixed and a variable) part price of production for fixed rises 10% price of production variable rises 5% overall selling price of good rises 5% the question essentially asking, will the company make more/less/same money as before according to my logic (which can be wrong) they would make less money given that production costs have at least increased by 5% (given by the variable) and ur only selling for 5% more ur selling price isn't covering the production costs and the amount that its less by, well thats dependant on the % that is variable vs fixed another thiing to consider is assume production costs rise 5%, u increase ur selling price by 5% ur overall % gain is still the same, but if u've got higher initial costs, then depending on cash flow u may not have enuff to produce stock, ie u produce less stock, ie u can only sell less prods, ie u make less overall too keep in mind, i didnt' study eco =P but this is just general thoughts based on my (or lack of) logic
