Reference no: EM133065089

1. You collect the following production data for your firm:

 

Q
196	2
1,155	6
443	3
62	1
1,114	9
712	5
1,045	7
631	4
903	11
1,232	10

 

A. Which functional form (linear, quadratic, cubic) is most suitable to your data? Construct a scatter diagram but be sure to just do the dots; don't include the lines that connect them. Then, play around with the trendline feature and include what you consider to be the best trendline.

 

B. Using OLS, estimate the firm's short-run production function. Comment on the strength of the regression results.

 

C. Calculate the Q, AP, and MP for L = 8 workers.

 

D. At 8 workers, is MC rising or falling, and how do you know?

 

2. GlueTooth®, the popular new startup company that manufacturers the world's first-ever Bluetooth-enabled denture adhesive, estimated its short-run costs using a U-shaped average variable cost function of the form and obtained the following results.  Total fixed cost (TFC) at GlueTooth® is $1,180.

 

Adjusted R Square	0.633
	Coefficients	Standard Error	t Stat	P-value
Intercept	49.40	4.91	10.06	0.0001
Q	-2.50	1.08	-2.32	0.0329
Q^2	0.18	0.05	3.61	0.0021

 

A. What level of output (Q) is associated with the minimum AVC? What is the value of AVC at this minimum?

 

B. Determine equations for ATC, TC, and MC. Graph one scatterplot of Q vs. TC, and another scatterplot of Q vs. ATC, AVC, and MC.

 

C. When output is 8, how much is TC, AVC, ATC, and MC?

 

D. At what amount of output does labor change from exhibiting increasing returns to decreasing returns?

 

3. In the U.S., city governments usually grant a monopoly right to a single cable company to provide cable service to people in that city; i.e., if you want television service to your house delivered through coaxial or fiber-optic cable, there is only one company from which to choose. Our definition of perfectly competitive markets stressed three characteristics: 1) small firms each producing a small percentage of total output, 2) firms produce homogeneous products, and 3) easy entry and exit from the industry. Recent developments in the industry (say, over the past decade) have made the cable market much more competitive. Present an argument why the cable industry may now satisfy each of these three criteria, even despite the obvious government-granted monopoly.

 

4. Suppose the market demand and supply functions are Q_D = 35,500 - 260P and Q_S = 80P + 10,680. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.

 

A. Determine the equilibrium price and quantity in this market.

 

B. You've researched and found that most firms in the market currently experience costs such that TC = 270 + 198Q - 6.8Q² + 0.09Q³. Determine whether or not you should enter this market. Use graphs to support your answer. (Remember that you can Format Axis and change the Minimum and Maximum Bounds of your axes to "zoom in" to a graph in Excel.)

 

C. Given the new supply conditions, determine whether or not you should enter the market.