02 Jun Question (12 Points) You are operating a firm in a perfectly competitive marke
Question
(12 Points)
You are operating a firm in a perfectly competitive market. In the short run, you have fixed costs of $30. Your variable costs are given in the following table:
Q
TVC
Tc
MC
0
0
30
1
70
100
70
2
120
150
50
3
150
180
30
4
190
220
40
5
270
300
80
6
360
390
90
Complete the following table:
Market Price
Profit maximizing
level of output
Profit
$48
4
$52
4
$75
4
$85
6
2. (10 Points)
A monopolist faces a demand curve given by:
A) (2 points) What quantity should the monopolist produce in order to maximize profit?
B) (2 points) What price should the monopolist charge in order to maximize profit?
C) (2 points) How much profit will the monopolist make?
D) (2 points) What is the deadweight loss created by this monopoly (hint: compare the monopoly outcome with the perfectly competitive outcome).
E) (2 points) If the market were perfectly competitive, what quantity would be produced?
3. (6 Points)
List the three conditions that must be met in order for a firm to successfully engage in price discrimination.
4. (12 Points)
Suppose a competitive firm can sell its output for $6 per unit. The following table gives the firm’s short run production function.
Labor
Output
Marginal output
0
0
1
20
20
2
50
30
3
90
40
4
110
20
5
120
10
6
124
4
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