Review Questions – WN Chapters 7. ECON 500 – Spring 2005. WN Chapter #7 (“Profit Maximization and Supply”): Review Questions: 5 and 8. Problems: 7.1, 7.3, 7.4, 7.6 and 7.9. Additional Questions: 1) Consider a competitive firm with Short Run costs of production given by Α++=3105)( qqqCSR. For this firm 2305)( qqMCSR+= . a. Determine Variable Costs and Fixed Costs of production. b. Determine Average Variable Costs of production. c. For what levels of output are Marginal Costs greater than Average Variable Costs? d. Determine the Short Run Supply of this firm as a function of price (clearly specifying the range of prices, if any, for which the firm will choose to “shutdown”). e. Suppose 125=p . Determine the Short Run profit of this firm, as a function of Α . For what values of Α is the firm able to earn a positive profit? Explain. 2) Consider a competitive firm with Short Run costs as illustrated below. a. Graphically illustrate the firm’s Short Run Supply curve. b. For what range of prices (if any) will the firm choose to “shutdown” in the Short Run? Clearly explain. c. For what range of prices (if any) will the firm be able to earn a positive profit in the Short Run? Clearly explain. MC AVC AC3) Consider a firm with Total Revenue (denoted )(qR ) and Total Costs (denoted )(qC ) as illustrated in the graph below: a. Can you determine if this firm is operating in the “Short Run” or the “Long Run”? Explain. If this firm is operating in the “Short Run,” determine the value of Fixed Costs of production. b. For what range of output is this firm able to earn a positive profit? Clearly explain. c. What level of output appears to maximize profit? Clearly explain. Determine the maximum value of profit for this firm. $ q )(qC)(qR00AqBqCqDqEq300 550 800 900 950
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