1.      Suppose your firm experiences the following total revenue function:

 

TR = 10Q – Q²

^ 

a.      Derive the marginal revenue and average revenue functions as a function of output?

 

 

 

 

 

b.         Suppose a firm could produce with a constant marginal cost, MC = 2.  What is the profit maximizing rate of output for the firm?

 

 

 

 

c.          Based on TR = P x Q what is the equation for thedemand curve, P = f(Q), and what is the profit maximizing price?

                             

 

 

 

d.     What is the price elasticity of demand at the profit maximizing rate of output based on the inverted demand function, Q = f(P)?

                                                                                       

 

 

 

 

 

2.      An economic estimate of X Corp’s demand function is as follows:

Q_D = 12,000 – 3 P_X + 4 P_Y – I M + 2 A_X

Where Q_Dis the quantity of good X that is demanded, P_X is the price of X, P_Y is the price of good Y, M is income, and A is the amount of advertising unitsused on X.

Suppose the good X sells for $200 per unit, good Y for $15 per unit, consumer income is $10,000, and the company utilizes 2000 units of advertising.

a.      How much of good X do consumers purchase?  (show calculation)

 

 

 

 

 

b.      Are goods X and Y substitutes or complements?  (How do you know?)

 

 

 

 

 

 

c.       Is good X a normal or an inferior good?(How do you know?)

 

 

 

 

 

d.      What is the point price elasticity of demand at the current price of $200 per unit?

 

 

 

 

 

3.      The research department estimates the following supply function for television sets:

Q_S = 2,000 + 3 P_X- 4 P_R - P_W

where Q_S is quantity supplied, P_X is the price of TV sets, P_R is the price of a computer  monitor, and P_W is the price of an input used to make TV sets. 

a.      Suppose TV sets are sold for a price of $400 per unit, computer monitors are sold for $100 per unit, and the price of the input is $2,000.  How many TV sets are produced?

 

 

 

 

 

b.      Based on the given values for P_R and P_W, what is the intercept and slope of the supply curve?

 

 

 

 

 

 

c.       What is the inverted supply curve where P_X = f(Q_S) for the supply curve in part b. 

 

 

 

 

 

 

 

 

4.      In the aftermath of a hurricane, an entrepreneur took a one-month leave of absence (without pay) from her $4,000 per month job in order to operate a kiosk that sold fresh drinking water from a local wholesaler at a price of $1.23 per gallon. 

a.      Write an equation that represents the total cost function of her operation.

 

 

 

 

 

 

 

 

b.      Write the equations that represent the average total cost, average fixed cost, average variable cost, and marginal cost of her operation.

 

 

 

 

 

 

 

 

 

c.       If consumers are willing to pay $2.00 to purchase each gallon of fresh drinking water, how many units would she need to sell in order to turn a profit?

 

 

 

 

 

 

 

 

5.       Temporary Services uses four word processors and two typewriters to produce reports.  The marginal product of a typewriter us 50 pages per day, while the marginal product of a word processor is 500 pages per day.  The rental price of typewriter is $1 per day, while the rental price of a word processor is $50 per day. 

a.      What is the marginal cost per page of each of the two alternative methods?

 

 

 

 

 

 

b.      Is Temporary Services utilizing typewriters and word processors in a cost minimizing manner? If not, how should they change their use of word processors versus typewriters?

 

 

 

 

 

6.      Recently, the U.S. located Boeing Commercial Airline Group (BCAG) recorded orders for more than 15,000 jetliners and delivered more than 13,000 airplanes.  To maintain its output volume, this Boeing division combines efforts of capital and more than 90,000 workers.  Suppose the European Company, Airbus, enjoys a similar production technology and produces a similar number of aircraft, but that the labor costs (including fringe benefits) are higher in Europe than in the United States.

a.      Would you expect workers at Airbus to have the same marginal product as workers at Boeing?  Explain your reasoning.

 

 

 

 

 

 

 

 

 

b.      Which of the two companies would you expect to be more capital intensive?  Explain you reasoning.

 

 

 

 

 

 

 

 

 

 

 

 

 

Attachments:

• 1504765838-Economics 5115 Mid-Exam.docx