12/8/24, 1:50 AM Calculating exercises chapter 6

PRINCIPLE OF MICROECONOMICS INSTRUCTOR: NGUYEN VIET HOA (0378418749)

CHAPTER 6: MARKET STRUCTURE

PART 1: ANSWER TRUE OR FALSE WITH SHORT EXPLANATION
1. A firm in perfectly competitive market has a downward sloping demand curve.
2. For a competitive firm, marginal revenue equals the price of the good it sells.
3. A perfectly competitive firm maximizes its profit when it produces output at the point where
price equals marginal cost.
4. A perfectly competitive firm maximizes total revenue when it produces output at the point
where marginal revenue equals to zero.
5. If a competitive firm triples the amount of output, its total revenue will increase more than
three times.
6. Total revenue curve of a perfectly competitive firm is a straight line, upward sloping, started
from the origin.
7. A firm in perfectly competitive market stops producing when it gets loss.
8. In the short run, if total revenue of a perfectly competitive firm smaller than total cost, it will
always continue producing even though it has to incur a loss.
9. A firm in perfect competition market continues producing only when it gets profit.
10. A perfectly competitive firm's short-run supply curve is the portion of its marginal cost
curve that lies above its minimum point of average total cost curve.
11. Demand curve and MR curve are coinciding in monopoly.
12. Demand curve of monopolist is a straight line, paralell to horizontal axis.
13. If marginal cost exceeds marginal revenue at a firm's current level of output, the monopolist
can increase profit if it increases its level of output.
14. If marginal revenue exceeds marginal cost at a firm's current level of output, the monopolist
can increase profit if it increases its price and reduces quantity.
15. Monopolist never incurs a loss.
16. Monopolist always produce in the inelastic portion of demand curve.
17. If the monopolist raise its price, total revenue will increase.
18. The portion of MC curve lies above the minimum point of AVC curve is the supply curve
of a monopolist.
19. In monopoly market, the short-run supply curve is coinciding with MC curve and upward
sloping.
20. When government imposes tax on monopolists, they will raise the price and reduce quantity.
21. When government imposes an excise tax on monopolists, they will keep their price and
quantity remain unchanged.
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12/8/24, 1:50 AM Calculating exercises chapter 6

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PART 2: CALCULATING EXERCISES

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Exercise 1: Average total cost function of a perfectly competitive firm is: ATC = Q + 5 + 𝑄

a) At the market price P = 25$, calculate Q*, 𝜋max and PS.

b) Determine the break-even point of this firm.
c) Determine the shut-down point of this firm.
d) At the market price P = 3$, should this firm close its business?
e) Derive this firm’s supply function in the short-run.
f) Assume that there are 50 firms in this market, each firm has the same supply function. Derive
the market supply function.
Exercise 2: A perfectly competitive firm has costs function as follow:
VC = 2Q2 + 10Q; FC = 200 (C, P: USD, Q: unit)
a) At the market price P = 62$, calculate Q*, 𝜋max and PS.
b) Determine the break-even point of this firm.
c) Determine the shut-down point of this firm.
d) At the market price P = 42$, should this firm close its business?
e) Derive this firm’s supply function in the short-run.
f) Assume that there are 20 firms in this market, each firm has the same supply function. Derive
the market supply function.
Exercise 3: A perfectly competitive firm has average total cost function as follow:
100
ATC = Q + 2 + Q
(P, C: USD; Q: unit)

a) At the market price P = 50$, calculate Q*, 𝜋max and PS.

b) Determine the break-even point of this firm.
c) Determine the shut-down point of this firm.
d) At the market price P = 10$, should this firm close its business?
e) Derive this firm’s supply function in the short-run.
f) Assume that there are 100 firms in this market, each firm has the same supply function.
Derive the market supply function.
Exercise 4: A perfectly competitive firm has MC = 2Q + 1, FC = 289 (P: $/unit, Q: unit).
a) At the market price P = 61$, calculate Q*, 𝜋max and PS.
b) Determine the break-even point of this firm.
c) Determine the shut-down point of this firm.
d) At the market price P = 5$, should this firm close its business?
e) Derive this firm’s supply function in the short-run.
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f) Assume that there are 50 firms in this market, each firm has the same supply function. Derive
the market supply function.
Exercise 5: A perfectly competitive firm has total cost function as follow:
TC = Q2 + 5Q + 400 (P: $/ton, Q: tons)
a) At the market price P = 55$, calculate Q*, 𝜋max and PS.
b) Determine the break-even point of this firm.
c) Determine the shut-down point of this firm.
d) At the market price P = 20$, should this firm close its business?
e) Derive this firm’s supply function in the short-run.
f) Assume that there are 30 firms in this market, each firm has the same supply function. Derive
the market supply function.
Exercise 6: Total cost function of a perfectly competitive firm is:
TC = Q2 + Q + 100 (P: $/unit, Q: unit)
a) At the market price P = 27$, calculate Q*, 𝜋max and PS.
b) Determine the break-even point of this firm.
c) Determine the shut-down point of this firm.
d) At the market price P = 9$, should this firm close its business?
e) Derive this firm’s supply function in the short-run.
f) Assume that there are 100 firms in this market, each firm has the same supply function.
Derive the market supply function.
Exercise 7: Cost function of a perfectly competitive firm is: AVC = 2Q + 4. At the market price
P = 24$, this firm incurs a loss = 150$.
a) Calculate FC of this firm.
b) Determine the break-even point of this firm.
c) Determine the shut-down point of this firm.
d) At the market price P = 104$, calculate Q*, 𝜋max and PS.
e) At the market price P =2$, should this firm continue producing or close its business?
f) Derive this firm’s supply function in the short-run.
g) Assume that there are 200 firms in this market, each firm has the same supply function.
Derive the market supply funtion.
Exercise 8: A perfectly competitive firm has AVC = 4Q + 5 (P,C: $, Q: tons). When the market
price is 45$, this firm earns zero profit.
a) Calculate FC of this firm.
b) Determine the shut-down point of this firm.
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c) At the market price P = 53$, calculate Q*, 𝜋max and PS.

d) At the market price P = 4$, should this firm continue producing or close its business?
e) Derive this firm’s supply function in the short-run.
f) Assume that there are 50 firms in this market, each firm has the same supply function. Derive
the market supply funtion.
Exercise 9: A perfectly competitive firm has AVC = 2Q + 3. When the market price is 19$,
this firm break-even.
a) Calculate FC of this firm.
b) Determine the shut-down point of this firm.
c) At the market price P = 27$, calculate Q*, 𝜋max and PS.
d) At the market price P = 9$, should this firm continue producing or close its business?
e) Derive this firm’s supply function in the short-run.
f) Assume that there are 20 firms in this market, each firm has the same supply function. Derive
the market supply funtion.
Exercise 10: A perfectly competitive firm has marginal cost function: MC = 6Q + 10 (P, C: $;
Q: kg). At the market price is P = 40$, this firm will incur a loss of 72$.
a) Calculate FC of this firm.
b) Determine the break-even point of this firm.
c) Determine the shut-down point of this firm.
d) At the market price P = 58$, calculate Q*, 𝜋max and PS.
e) At the market price P = 38$, should this firm continue producing or close its business?
f) Derive this firm’s supply function in the short-run.
g) Assume that there are 50 firms in this market, each firm has the same supply function. Derive
the market supply funtion.
Exercise 11: A perfectly competitive firm has average variable cost function as follow: AVC
= 4Q + 6 (P: $, Q: kg). At the market price is 46$, this firm incurs a loss of 300$.
a) Calculate FC of this firm.
b) Determine the break-even point of this firm.
c) Determine the shut-down point of this firm.
d) At the market price P = 96$, calculate Q*, 𝜋max and PS.
e) At the market price P = 54$, should this firm continue producing or close its business?
f) Derive this firm’s supply function in the short-run.
g) Assume that there are 100 firms in this market, each firm has the same supply function.
Derive the market supply funtion.
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Exercise 12: A monopolist faces demand curve: P = 150 – 3Q. Cost functions of this firm are:
AVC = 0,5Q + 10; FC = 500$.
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 7$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
g) Government imposes a fixed tax of 300$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 13: A monopolist faces the demand function: P = 55 - 2Q and has total cost function
as follow: TC = 100 - 5Q + Q2 (P: $/kg, Q: kg)
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 6$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
g) Government imposes a fixed tax of 100$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 14: A monopolist faces the demand function: Q = 100 - 2P and has total cost function
as follow: TC = 3Q2 + Q + 9 (TC: $, P: $/kg, Q: kg)
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 7$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
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g) Government imposes a fixed tax of 100$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 15: A monopolist has MC = 300$, FC = 40000$ and faces the demand function:
Q = 1000 – P (P: $/unit, Q: unit)
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 150$/unit on the monopolist. Calculate new optimal
P, Q and πmax of the monopolist.
g) Government imposes a fixed tax of 1000$ on the monopolist. Calculate new optimal P, Q
and πmax of the monopolist.
Exercise 16: A monopolist has the total revenue function: TR = 100Q – 2Q2 and average
variable cost function: AVC = Q + 4, FC = 300$ (P: $/kg, Q: kg).
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 7$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
g) Government imposes a fixed tax of 200$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 17: A monopolist has MC = 4Q + 8, FC = 650$ and faces the demand function:
P = 890 – Q (P: $/kg, Q: kg)
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
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f) Government imposes an excise tax of 6$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
g) Government imposes a fixed tax of 600$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 18: A monopolist faces demand function P = 120 - 2Q and has total cost function as
follow: TC = 0,5Q2 + 5Q + 40 (P: $/kg, Q: kg)
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 4$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
g) Government imposes a fixed tax of 500$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 19: A monopolist has MC = 2Q + 10, FC = 1000$ and faces the demand curve:
Q = 750 – P (P: $/kg, Q: kg)
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 20$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
g) Government imposes a fixed tax of 300$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 20: A monopolist has MC = 8Q + 10, FC = 100$ and faces the demand curve:
Q = 110 – P (P: $/kg, Q: kg)
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
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d) Calculate optimal P, Q of perfectly competitive market.

e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 10$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
g) Government imposes a fixed tax of 50$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 21: A monopolist faces demand function: P = 100 – Q and has constant average total
cost ATC = 30 (P: $/unit, Q: unit).
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 10$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
g) Government imposes a fixed tax of 600$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 22: A monopolist faces demand curve: P = 18 – 2Q. Cost function of this firm is:
TC = Q2 (P: $/unit, Q: unit).
a) Calculate optimal P, Q of the monopolist. Calculate πmax, PS, CS of this firm.
b) Calculate P, Q of the monopolist in the maximizing total revenue strategy. Calculate π of
firm in this case.
c) Calculate Lerner index of the monopolist.
d) Calculate optimal P, Q of perfectly competitive market.
e) Calculate DWL created by the monopolist.
f) Government imposes an excise tax of 3$/unit on the monopolist. Calculate new optimal P,
Q and πmax of the monopolist.
g) Government imposes a fixed tax of 10$ on the monopolist. Calculate new optimal P, Q and
πmax of the monopolist.
Exercise 23: A monopolist is facing a demand curve: P = 76 – 2Q and cost function ATC =
20
2Q + 4 + 𝑄
(P: thousand dollar/ton, Q: tons).

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a) Calculate this firm’s decision on price, quantity and profit when this firm wants to maximizes
its profit. Calculate CS, PS in this case.
b) Calculate this firm’s decision on price, quantity and profit when this firm wants to maximizes
its total revenue.
c) Calculate Lerner index of the monopolist.
d) Calculate DWL created by the monopolist.
e) Government imposes an excise tax of 8,000 dollars/ton on the monopolist. Calculate new
optimal P, Q and πmax of the monopolist.
f) Government imposes a fixed tax of 200,000 dollars on the monopolist. Calculate new
optimal P, Q and πmax of the monopolist.
g) The firm employs Mr.John Smith to be production manager and considers between 2 options
(1) paying him the salary at 10,000 dollars monthly regardless of his performance and (2)
paying him 5,000 dollars monthly as basic salary and for each ton he can produce more, he
gains 1,000 dollars more in his salary. Compare the maximum profit that the firm earns monthly
in each option?

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