need done by 6pm Central 4/27/2017

 

1. Suppose that the initial market equilibrium price of gasoline, P1*, is $2.00 per gallon (P1* = $2.00) and the initial market equilibrium quantity is Q1*. Suppose that at the initial market equilibrium, gasoline demand is inelastic and gasoline supply is elastic. In the graph below, illustrate and explain the effect of an increase in price of crude oil (say from $30/barrel to $50/barrel) on the total revenue of gasoline producers. Justify your conclusion by showing graphically the effects on total revenue caused by (i) the change in the equilibrium price of gasoline and (ii) the change in the equilibrium quantity of gasoline. Recall that crude oil is an input of gasoline. (10 points)

 

**graph***

 

 

2. The table below gives cost data for Acme, Inc., a perfectly competitive, profit-maximizing widget firm. Fill in the blanks and highlight one of the responses in each set of brackets. (15 points)

 

1. If the market price of a widget is $60 and ACME produces 150 widgets, then Acme [ is | is not ] maximizing its profits because MR(150) = $___________ [ < | = | > ] $__________ and Acmeâs profits are 150 widgets are à(150) = $__________________ (i.e., calculate à(150)).
2. If the price of a widget is $60, then Acmeâs profit maximizing output level, Q1*, is ____________ units and its profits at Q1* are à(Q1*) = $__________________ (i.e., calculate à(Q1*)).
3. Suppose that the price decreases to $30 and the firm produces 140 units of output. If the firm produces and sells one more widget (141) then its profits will [ increase | decrease ] by $__________.

If the price decreases to $12, then Acmeâs profit maximizing (or loss minimizing) output level, Q2*, is ____________ units and its profits at Q2* are à(Q2*) = $__________________ (i.e., calculate à(Q2*)).

 

 

 

**table**

 

need done by 6pm Central 4/27/2017

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Status NEW Posted 03 May 2017 03:05 AM My Price 7.00

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