2

. Consider estimation of a short-run average

.yariable cost function of the form:

Ave = a + bQ + cd

Using time-series data, the estimation procedure produces the following computer output:

VARIABLE

INTERCEPT

PARAMETER STANDARD

ESTIMATE ERROR

7

.5 26

.5

-0

.0120 0

.0058

0

.00006 0

.000013

T-RATIO

2

.83

-2

.07

4

.62

P-VALUE

0

.0107

0

.0524

0

.0002

DEPENDENT VARIABLE: AVe

OBSERVATIONS: 22

R-SOUARE F-RATIO P-VALUE ON F

0

.8557 56

.32 0

.0001

o

02

a

. Average variable cost reaches its minimum at what level of output? What is minimum average variable cost at this level of output?

b

. When output is 6,000 units, what is average variable cost and marginal cost?

3

. The table below shows a perfectly competitive firm's short-n;n production function

. Labor is the firm's only variable input, and the market price for the firm's product is $2 per unit

.Units of Labor Units of Output

3

4

5

6

7

370

490

570

600

620

a

. How much does the fifth unit of labor add to the firm's total revenue?

b

. If the wage rate if $200; how many units oflabor will the firm emplc y?

c

. How many units of labor will the firm employ at a wage rate of $200 if the market price fort he firm's product increases to $5?

4

. A consulting company in a perfectly competitive industry fo recasts the market price for the next year to be $6

.Average variable cost is estimated to be:

Ave = 14 - O

.008Q + o

.ooooozo'

Total fixed cost will be $6,000 next year

.a

. Should the firm produce or shut down next year? Explain

.b

. If the firm produces next year what will be the profit-maxim: zing output choice?

c

. What will the firm's expected profit (loss) be?

5

. A monopoly firm faces the following estimated demand and average variable cost functions:

Qd = 100,000 - 500 P + 2M + 5000 PR

AVe = 520 - 0

.03Q + O

.OOOOOlg

Where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good

. The manager has forecasted the values of M and PR will be $50,000 and $20, respectively, in 2014

. Total fixed cost in 2014 is expected to be $4 mill

.on

.a

. . Should the manager produce or shut down in 20l4? Explain

.b

. If the firm operates in 2014, what will be the profit-maximizing price and output?

c

. What will the firm's expected profit be?