ECO 431 Supply Analysis Market Structures
ECO 431 Replication Questions
Modules 2 & 3: Supply Analysis/Market Structures
Chapters 5, 7,8 : Supply Analysis/ Production Costs; Market Structures
1) Chapter 5: The following table summarizes the short-run production function for your firm. Your product sells for $5 per unit, labor costs $10 per unit, and the rental price of capital is $10 per unit. Complete the following table, and then answer the accompanying questions.
a. First, complete the following table (fill in the blanks), and then answer the accompanying questions.
b. According to table, which inputs are fixed inputs? Which are the variable inputs?
c. After what level of the variable input (K) can the firm maximize profits?
d. Between what ranges of variable input (K) do increasing marginal returns exist?
e. Between what ranges of variable input (K) do decreasing marginal returns exist?
Tip: Before answering question C, Remember profit maximizing rule in relation to K (capital): Marginal productivity of capital (VMPK) must be equal or larger than r (rent)
where
Likewise, profit maximizing rule in relation to (labor) is Marginal productivity of labor (VMPL) must be equal or larger than w (wage)
where
K | L | Q | MPk (Marginal Productivity of Capital) | APK (Avrg Productivity of Capital) | APL (Avrg. Productivity of Labor) | VMPk (Value of Marginal Productivity of Capital) |
0 | 10 | 0 | 0 | 0 | 0 | |
1 | 10 | 10 | 10 | 1 | 50 | |
2 | 10 | 30 | 15 | 1 | 100 | |
3 | 10 | 60 | 30 | 20 | 6 | 150 |
4 | 10 | 80 | 20 | 20 | 8 | 100 |
5 | 10 | 90 | 10 | 18 | 9 | 50 |
6 | 10 | 95 | 5 | 15.8 | 9.5 | 25 |
7 | 10 | 95 | 0 | 13.5 | 9.5 | 0 |
8 | 10 | 90 | -5 | 11.25 | 9 | -25 |
9 | 10 | 80 | -10 | 8.8 | 8 | -50 |
10 | 10 | 60 | -20 | 6 | 6 | -100 |
Answer:
2) Chapter 5: The e-manager of a national retailing outlet recently hired an economist to estimate the firm's production function. Based on the economist's report, the manager now knows that the firm's production function is given by and that Capital (K) is fixed at 2 units.
a) What is the name of this production function?
b) Calculate the average product of labor (APL) when 5 units of labor are utilized.
c) Calculate the marginal product of labor (MPL) when 5 units of labor are utilized.
Answer:
3) Chapter 5: For the cost function C(Q) = 100 + 2Q + 3Q2, calculate the marginal cost of producing 2 units of output:
Answer:
4) Chapter 5: Given the following table, how many workers should be hired to maximize profits? Explain and show
Tip: Remember the profit maximization rule in relation to labor!!
Answer:
5) Chapter 5: The production function for a competitive firm is . The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at one unit. What is the profit-maximizing quantity of labor?
Answer:
6) Chapter 5: Which of the following sets of economic data is minimizing the cost of producing a given level of output? Show it by applying the rule.
a. MPL = 20, MPK = 40, w = $16, r = $32
b. MPL = 20, MPK = 40, w = $32, r = $16
c. MPL = 40, MPK = 20, w = $16, r = $32
d. MPL = 40, MPK = 40, w = $16, r = $32
Tip: Remember that the rule for minimizing the cost of producing a given level of output is
MPL /K/r
Answer:
7) Choose a total of 6 key terms or concepts from the end of Chapters 5,6, and 7 in your textbook. Define these terms, explain its importance for Managerial Economics, and give an example for each.
Answer:
8) Chapter 8: Assume that a firm has measured demand carefully and thinks that the following table accurately displays this. The total cost has been measured and can be given as TC = 20 + Q + where Q is the level of output. Complete the table and determine the profit-maximizing(optimal) level of output.
Output (Q) | Total Revenue | Total Cost | Profit |
1 | $90 | ||
2 | 160 | ||
3 | 210 | ||
4 | 240 | ||
5 | 250 | ||
6 | 240 | ||
7 | 210 | ||
8 | 160 | ||
9 | 90 | ||
10 | 0 |
Answer:
9. Chapter 7: An industry is comprised of ten (10) firms, each with an equal market share. What is the 4-firm concentration ratio of this industry?
a. 0.2
b. 0.4
c. 0.6
d. 0.8
10. Chapter 7: Suppose that there are two industries, A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are 4-firms in industry B with equal sales of $2.5 million for each firm. The HHI for industry B is: Show by calculating the HHI
a. 2,500
b. 1,800
c. 3,200
d. 2,800
Answer:
11) Chapter 8: You are the manager of a firm that has an exclusive license to produce your product in a perfectly competitive market. Your Marginal Revenue curve is MR = 900-3Q. Your cost function is . Your market demand curve is: . a) Determine the output you should produce, b) the price you should charge, and c) your maximum profits.
Tips: Remember 3 rules when answering this question (check out the study guide 3 also)
1) Set Marginal Cost (in perfectly competitive markets)
2) How to find Marginal Cost? You take the “derivation” of Cost Function [C(Q)]
3) How to find maximum profits when cost functions and prices (market demand function) are given:
Max (Q)-C(Q), meaning
Max Profits= (Price X Quantity)-Cost function
Answer:
-
Rating:
/5
