Reference no: EM13862001
Problem 1: Explain the difference between the short-run and the long-run with regard to firm behavior. What are fixed and variable factors of production, and how does this distinction relate to the short-run, long-run distinction? How does the concept of sunk costs relate to fixed and variable costs?
Problem 2: Carefully explain why the short-run supply curve for a competitive firm is the portion of its short-run margin cost curve above its average variable cost. Why would a firm be willing to operate at a loss in the short-run, but not in the long-run? Carefully explain the distinction between the short-run and the long-run in your answer.
Problem 3: Suppose a firm's short-run total cost function is described by the following quadratic cost function:
C(q) = 100 + 6q + q2.
Solve for the equations for the firm's MC, AVC, and ATC curves. Construct a graph showing the firm's MC, AVC, and ATC curves.
Problem 4: Consider the table below which gives two total cost schedules for two different scales of operation for a firm. TC1 is for a fixed cost of $25, while TC2 is for a fixed cost of $30. Assume the firm is a price taker.
|
Output per month
|
TC1
|
TC2
|
|
0
|
$25
|
$30
|
|
1
|
45
|
45
|
|
2
|
57
|
63
|
|
3
|
70
|
76
|
|
4
|
84
|
91
|
|
5
|
102
|
107
|
|
6
|
123
|
125
|
|
7
|
147
|
145
|
|
8
|
175
|
167
|
|
9
|
209
|
191
|
|
10
|
249
|
223
|
a. If the market price is $25, at what output, rate will the firm maximize profits in the long run? Does it matter whether the firm believes that a price of $25 will persists as the equilibrium price? Carefully explain.
b. Suppose the price falls to $19 from $25. How would the firm react in the short run if it expected the $19 price to be temporary, remaining to $25? What would the firm do if it expected the new $19 price to be permanent?
Problem 5: A firm produces units of output (q) by applying the production function q = L.5 .K.5, where L and K refer to labor and capital, respectively. The firm faces fixed per-unit prices for L and K (PL = 10 and PK = 40) and chooses a long-run output rate of q = 50. First, solve for the long-run optimal (cost-minimizing) input combination of L and K for q = 50. Second, given the firm has chosen the optimal K for q = 50, derive the firm's short-run total cost function. Third, derive the function for short-run ATC, AVC, and MC. Finally, if the firm is competitive and faces an output price P = 40, what is the firm's short-run profit-maximizing output and total profit?
|
Price ceilings and price floors
: Discuss whether you think we should continue to have a zero price for using a freeway. Or should we have transponders mounted on the dashboards of vehicles, as practiced in Singapore, which monitor and track the miles-driven within a city. Discuss wh..
|
|
What is the expected end of period price
: What is the weighted average cost of capital of this company if the debt/equity ratio is 0.25 and the debt is considered to be risk-free? What is the expected end of period price?
|
|
Concepts of consumer-producer surplus-deadweight loss
: Post and discuss why the tax credit enacted by the 2009 American Recovery and Reinvestment Act has no effect on the employees’ supply of labor using the concepts of consumer surplus, producer surplus and deadweight loss. Apply the effects of the Soci..
|
|
The inverse demand and supply curves
: A2-9. Suppose the inverse demand and supply curves are given by (where Qs and Qd are quantities P is price): Demand: P = 35 - (1/3) Qd Supply: P = 5 + (2/3) Qs (a) Calculate the equilibrium price and quantity in this market. Graph the demand and sup..
|
|
Difference between the short-run and the long-run
: Explain the difference between the short-run and the long-run with regard to firm behavior. What are fixed and variable factors of production, and how does this distinction relate to the short-run, long-run distinction? How does the concept of sun..
|
|
Influential effect on development of twentieth century art
: Write an analytical essay that identifies, examines, and evaluates three distinct approaches that artists have embraced to respond to the significant changes of the twentieth century. Which approaches would you argue have had the most influential ..
|
|
Federal reserve system has forced short-term interest rates
: What does the term "INTEREST RATE INVERSION" refer to? For the past several years, the Federal Reserve System has forced short-term interest rates to nearly zero. Why has it not been able to do the same for long-term interest rates? Explain.
|
|
The income elasticity of demand for servants
: Studiesindicate that the income elasticity of demand for servants in the United Statesexceeds 1. However, the number of servants has been decreasing during the last75 years, while incomes have risen significantly. How can these facts bereconciled?
|
|
Does private ownership entitle the owners to do anything
: What would happen to the size of the cattle population if Americans decided to eat substantially less beef? Explain the logic underlying your answer. Does private ownership entitle the owners to do anything they want with their property? Why or why n..
|