04 Jun Question Econ 302 Homework 4
Question
Econ 302
Homework 4
Read these instructions carefully!
Carefully answer each of the questions below.
You need to show your work, not just the final answer
You can write or type your answers for the questions
Please put your name and PSU ID number at the top of the 1st page
You may use as many sheets of paper as you need.
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Scan your entire document (including the parts you typed and the parts done by hand)
Save the file on your computer (.PDF format preferred) and then upload it to the ANGEL dropbox for this homework assignment.
Merge the separate PDFs into one file using a service such as (PDFMerge!)
Failure to submit a single file will result in points being deducted
If you typed everything:
Save the file on your computer (.doc or .docx format) and then upload it to the ANGEL dropbox for this homework assignment.
Be sure your assignment is all on one file. Failure to submit a single file will result in points being deducted
1. (20 total points) Suppose the demand for a product is given by QD = 2000 – 25P.
a) (10 points) Calculate the Price Elasticity of Demand when the price is $30.
b) (5 points) What price should the firm charge if it wants to maximize its revenue?
c) (5 points) Over what price range is demand elastic?
2. (30 points) Complete the following table:
Quantity
FC
VC
TC
AFC
AVC
ATC
MC
0
45
0
45
——
——
——
——
1
65
2
17.5
3
10
4
30
5
120
3. (30 total points) Suppose a firm’s production function is given by Q = L1/2*K1/2. The Marginal Product of Labor and the Marginal Product of Capital are given by:
MPL = , and MPK = .
a) (12 points) If the price of labor is w = 36, and the price of capital is r = 64, how much labor and capital should the firm hire in order to minimize the cost of production if the firm wants to produce output Q = 24?
b) (12 points) What is the firm’s Total Cost function TC(Q)?
c) (6 points) What is the firm’s marginal cost of production?
4. (20 total points) Suppose in the short run a perfectly competitive firm has variable cost = 3q2, and MC = 6q where q is the quantity of output produced. Also, the firm has fixed cost F = 2500.
a) (8 points) If the market price of the product is 270, how much output should the firm produce in order to maximize profit?
b) (6 points) How much profit will this firm make?
c) (6 points) Given your answer to b), what will happen to the market price as we move from the short run to the long run?
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