Grand Canyon ECN601 Module 4 problems

1. Use the following to calculate profit at each quantity

of output.

(Total) Output
(Q)

Price
(P)

Total
Revenue
(TR)

Total Cost
(TC)

Profit

0

$1,900

$0

$1,000

1

$1,700

$1,700

$2,000

2

$1,650

$3,300

$2,800

3

$1,600

$4,800

$3,500

4

$1,550

$6,200

$4,000

5

$1,500

$7,500

$4,500

6

$1,450

$8,700

$5,200

7

$1,400

$9,800

$6,000

8

$1,350

$10,800

$7,000

9

$1,300

$11,700

$9,000

(Total) Output
(Q)

Price
(P)

Total
Revenue
(TR)

Total Cost
(TC)

0

$1,900

$0

$1,000

1

$1,700

$1,700

$2,000

2

$1,650

$3,300

$2,800

3

$1,600

$4,800

$3,500

4

$1,550

$6,200

$4,000

5

$1,500

$7,500

$4,500

6

$1,450

$8,700

$5,200

7

$1,400

$9,800

$6,000

8

$1,350

$10,800

$7,000

9

$1,300

$11,700

$9,000

5. Use the following information to calculate accounting profit and economic profit.

Sales $100

Employee expenses $40

Inventory expenses $20

Value of owner’s labor in any other enterprise $40

(Total) Output
(Q)

Price
(P)

Total
Revenue
(TR)

Total Cost
(TC)

0

$1,900

$0

$1,000

1

$1,700

$1,700

$2,000

2

$1,650

$3,300

$2,800

3

$1,600

$4,800

$3,500

4

$1,550

$6,200

$4,000

5

$1,500

$7,500

$4,500

6

$1,450

$8,700

$5,200

7

$1,400

$9,800

$6,000

8

$1,350

$10,800

$7,000

9

$1,300

$11,700

$9,000

11. Use the information in the table to calculate total

revenue, marginal revenue, and marginal cost. Indicate

the profit-maximizing level of output. If the

price was $3 and fixed costs were $5, what would

variable costs be? At what level of output would the

firm produce?

Output

Price

Total Costs

TR

MR

MC

1

$5

$10

$5

2

$5

$12

$10

$5

$2

3

$5

$15

$15

$5

3

4

$5

$19

$20

$5

4

5

$5

$24

$25

$5

5

6

$5

$30

$30

$5

6

7

$5

$45

$35

$5

15

The profit maximizing level of output is at five units, where

marginal equals marginal cost.

1. Cost figures for a hypothetical firm are given in the

following table. Use them for the exercises below.

The firm is selling in a perfectly competitive market.

Output

Fixed
Cost

AFC

Variable
Cost

AVC

Total
Cost

ATC

MC

1

$50

$50

$30

30

2

$50

$25

$50

20

3

$50

$16.67

$80

30

4

$50

$12.50

$120

40

5

$50

$10

$170

$34

$220

$44

50

a. Fill in the blank columns.

b. What is the minimum price needed by the firm

to break even?

c. What is the shutdown price?

d. At a price of $40, what output level would the

firm produce? What would its profits be?

14. Use the following data for the exercises below.

Price

Quantity
Supplied

Quantity
Demanded

$20

30

0

$18

25

5

$16

20

10

$14

15

15

$12

10

20

$10

5

25

$8

0

30

a. What is the equilibrium price and quantity?

b.Draw the demand and supply curves. If this

represents perfect competition, are the curves

individual-firm or market curves? How is the

quantity supplied derived?

c. Show the consumer surplus. Show the producer

surplus.

d. Suppose that a price ceiling of $12 was imposed.

How would this change the consumer and producer

surplus? Suppose a price floor of $16 was

imposed. How would this change the consumer

and producer surplus?

13. Use the payoff matrix below for the following exercises.

The payoff matrix indicates the profit outcome

that corresponds to each firm’s pricing strategy.

Firm A’s Price

$20

$15

Firm B’s
Price

$20

Firm A earns $40
profit

Firm A earns $35
profit

Firm A earns $40
profit

Firm B earns $39
profit

$15

Firm A earns $49
profit

Firm A earns $38
profit

Firm B earns $30
profit

Firm B earns $35
profit

a. Firms A and B are members of an oligopoly.

Explain the interdependence that exists in oligopolies

using the payoff matrix facing the two

firms.

b. Assuming that the firms cooperate, what is the

solution to the problem facing the firms?

c. Given your answer to part (b), explain why

cooperation would be mutually beneficial and

then explain why one of the firms might cheat.