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PGP Practice Questions (Midterm)

This document provides 6 practice questions related to microeconomics concepts covered in chapters from the Besanko textbook. The questions cover topics such as perfectly competitive markets, consumer and producer surplus, cost functions, supply curves, and the deadweight loss from price ceilings. Students are advised to attempt these questions after working through relevant end-of-chapter questions to prepare for an upcoming midterm exam.

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Aditya Vidolkar
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233 views3 pages

PGP Practice Questions (Midterm)

This document provides 6 practice questions related to microeconomics concepts covered in chapters from the Besanko textbook. The questions cover topics such as perfectly competitive markets, consumer and producer surplus, cost functions, supply curves, and the deadweight loss from price ceilings. Students are advised to attempt these questions after working through relevant end-of-chapter questions to prepare for an upcoming midterm exam.

Uploaded by

Aditya Vidolkar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

PGP 2018: Practice Questions

Mid-term Prep

August 9, 2018

These are a few practice questions from chapters covered after Quiz 1. Attempt these after

having solved for the relevant questions at the end of chapters from Besanko text-book.

1. The mozzarella cheese market in Indore is a perfectly competitive market. All firms in

Indore use the same technology of production and face costs given by C(Q) = 9 + Q2

where Q is the quantity of mozzarella cheese that is produced. The entire industry faces

a demand curve given by D(P ) = 30 − P . The equilibrium price of a unit of cheese is

Rs. 10.

(a) What is the profit maximizing output supplied by each firm?

(b) How many firms will operate in this market in the short run?

(c) Contrast the profits of a firm and number of firms in this industry in the short and

long-run equilibrium. (Assume that there is no change in technology in the long

run.)

1
2. In an unregulated competitive market, demand and supply have been estimated as P =

25 − 0.10Q and P = 4 + 0.116Q respectively where P represents unit price in dollars, and

Q represents number of units sold per year. Calculate the annual aggregate consumer

and producer surplus.

3. The cost function of a firm operating in competitive markets is given by C(q) = 4q 2 + 16.

(a) Find variable cost, fixed cost, average variable cost, and average fixed cost.

(b) What is the output that minimizes average cost?

(c) At what range of prices will the firm produce a positive output?

(d) At what range of prices will the firm earn a negative profit?

4. A competitive firm with a production function of q = 9l1/2 in the short run has fixed

costs of $1000, and l is the variable input, whose cost is $4000 per unit.

(a) What is the total cost of producing a level of output q?

(b) Write down the equation for the supply curve.

(c) If price is $1000, how many units will the firm produce?

5. Phool Kumari wants to open a flower shop in a mall. The monthly rental will be Rs. 1 a

square foot. She estimates that if she has F square feet of floor space and sells y bouquets

a month, her variable cost will be cv (y) = y 2 /F per month. If she has 200 square feet of

floor space, write down her marginal cost and average cost functions. At what amount

is the average cost minimized? At this level of output, how much is the average cost?

6. In a competitive market, the supply and demand are P = 5 + 0.36Q and P = 100 − 0.04Q

respectively, where P represents price per unit in dollars, and Q represents rate of sales

2
in units per year. What is the deadweight loss if government introduces a price ceiling of

$40 per unit?

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