# Demand curve

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ECON 357v2 Assignment 2B January 2018

ECON 357 Assignment 2 (Version B)

This assignment is worth a total of 100 marks. Each question is worth 12 marks with the exception of question 8, which is worth 4 marks.

Prepare responses to the following questions in a single document. Make sure to show your calculations.

1. A monopolist firm faces the following average revenue (demand) curve:

P = 120 – 0.02Q

where Q is weekly production and P is price, measured in cents per unit. The firm’s cost function is given by TC = 25,000 + 60Q. Assume that the firm maximizes profits.

(a) What is the level of production, price, and total profit per week?

(b) If the government decides to levy a tax of 14 cents per unit on this product, what will be the new level of production, price, and profit?

(c) Suppose this firm is now operating in a perfectly competitive market structure. Calculate the price and quantity this firm will produce to maximize its profit.

1. (a) Graphically illustrate a perfectly competitive firm incurring a loss in the short run.

(b) Explain what is meant by “shut-down determination” in the short run.

(c) If perfectly competitive firms are incurring a loss in the short run, graphically illustrate and explain the adjustments to long-run equilibrium.

(d) Graphically derive and explain the underlying theory of the long run industry supply curve, assuming a constant cost industry.

1. (a) If the government adopts a ceiling price on rental units, graphically illustrate and explain the effect on consumer surplus and producer surplus.

(b) Graphically illustrate the effect on consumer surplus and producer surplus if the government adopts a floor price for an agricultural good.

(c) Compare the impact of a ceiling price and floor price on consumer surplus and producer surplus.

ECON 357v2 Assignment 2B January 2018

1. Given the following information:

P = 20 – 2Q

MC = AC = 4

(a) Determine the profit-maximizing output and price charged by a monopolist.

(b) Determine the competitive price and output.

(c) Graphically illustrate and calculate the deadweight loss due to the monopoly.

1. Consider the following information for Rancher John:

VC = 40q + q2

(a) If the market price is \$150, calculate the output level for Rancher John in the short run.

(b) If total fixed cost is \$8000, should Rancher John shut down or continue to produce in the short run? Explain your decision.

1. (a) Assuming competitive factor markets, graphically illustrate and explain the difference between marginal revenue product for a competitive output market and a monopolistic output market.

(b) Assuming competitive factor markets, graphically illustrate and discuss the effect of an increase in the wage rate in a competitive labour market.

(c) Graphically derive the long run demand curve in a competitive factor market and explain the underlying theory (assuming wages decrease).

1. (a) Graphically illustrate and explain a firm engaging in intertemporal price discrimination.

(b) Graphically illustrate and explain a firm engaging in peak-load pricing.

(c) A monopolist firm faces a demand with constant elasticity of -2.0. It has a constant marginal cost of \$20 per unit and sets a price to maximize profit. If marginal cost increases by 25%, what would be the change in price level?

ECON 357v2 Assignment 2B January 2018

1. The table below contains information for Mom Pizza in the city of Saskatoon, SK. Mom Pizza is operating in a competitive market, has a fixed cost of \$12, and sells only one size of pizza for \$15.
 Total VC TC MC TR MR ATC Profit 0 0 1 9 2 20 3 35 4 55 5 65 6 70 7 80 8 101 9 130 10 165 11 205 12 250

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