Assignment II
BECO100 Principles of Microeconomics (Section 001 & 002)
Submission Deadline April 19, 2012
Name__________________________Student ID ________________________Section_____
Please write your answer on a separate sheet of paper. (8 questions in total)
1. A frim can use three dfferent production technologies, with capital and labor requirement at
each level of out put as follow:
Suppose the firm is operating in a high-wage country, where capital cost is $100 per unit per day and
labor is $80 per worker per day.
At each daily output level which technology should be the least expensive?
2. You are given the following cost data: Total fixed
costs are $100.
a) If the price of output is $24, how many units of
output will this firm produce (assuming the firm
produces in the short run)?
b) What is the total revenue and total cost at the
production level you get in the part a)?
c) Will the firm operate or shut down in the short run?
3. The following table gives capital and labor requirement for 10 different levels of production.
Assuming the price of labor is $10 per unit and the price of capital is $7 per unit,
a) Compute the total variable cost curve, the marginal cost curve and the average variable cost
curve for the firm.
b) Graph marginal cost curve and the average variable cost curve for the firm.
To do this, first, fill in the total variable cost for each output level in the table below:
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4. Use the information in three graphs (a)—(c) to find the values of
a) Profit-maximizing quantity
b) Firm profit or loss for each figure(a)—(c).
5. A representative firm producing cloth is earning a normal profit at a price of $7 per yard. The
figure (a) below illustrates a representative firm’s shot-run average cost curve (SRAC) short-run
marginal cost curve (SRMC), and long-run average cost curve (LRAC). The figure (b) shows the
industry, assuming the industry is a constant-cost industry.
a) Use the diagram (b) to show the long-term adjustment of the industry as demand grows over time.
Draw the new demand curve; indicate the new short run equilibrium point.
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b) Use the diagram (b) to show the increase in demand and how the industry is likely to respond in
the short run in the long run. Draw the new supply curve, and indicate the new long-run equilibrium
point.
6. The graph at right shows a natural monopoly. If this industry consists of three firms of
approximately equal size, what is the
average cost?
Suppose a firm is allowed to operate as a
natural monopoly under government
regulation, identify the price-quantity
combination along the LRAC that will
allow the firm to earn a normal rate of
return.
7. The following table represents the
market share percentage for each firm in a hypothetical industry.
a) What is the 4-frim concentration ratio for this industry?
b) What is the Herfindahl-Hirschman Index (HHI) for this industry?
c) Based on the HHI dose Justice Department think this industry concentrated or not?
d) Suppose firm C and E merge. The value of HHI following this merge should be?
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8. The diagram at right shows the structure of
cost and demand facing a monopolistically
competitive firm in the short run.
a) What is the profit-maximizing output
quantity and price?
b) What is the total revenue, cost and profit or
loss?
