Chap 6
1. Assume you are the manager of a bakery operating in a perfectly competitive
market. The total cost function is given by: TC = 3,000,000 + 2Q².
a) If the market price of a cake is 10,000 VND, how many cakes should you
produce to maximize profit? What is the maximum profit level? (q* = 2500, IImax
= 9500000)
b) Please find the short-run supply curve of a bakery. (p = 4q (p > AVCmin))
2. The marginal cost of a perfectly competitive firm is MC = 10 + 2Q. If the market
price for the firm is $50 per unit:
a) What is the level of output the firm will produce to maximize profit? (q* = 20)
b) What is the producer surplus of the firm? (PS = 400)
c) If the fixed cost of the firm is FC = $300, does the firm make a profit in the short
run? If so, how much is the profit? (II = 100)
3. The market for good X, which operates under perfect competition, has the
following supply and demand equations:
Q = -50P + 7000
Q = 40P - 2000
a) Calculate the market equilibrium price and quantity (Q* = 2000, P* = 100)
b) If a firm producing good X in this market has a total cost of TC = q² + 20q + 100,
what is the firm's maximizing-profit quantity? Please calculate the profit at that
output level (q* = 40, II = 1500)
c) If all firms have the identical production cost, how many firms are in market X?
(n = 50)
d) If new firms enter this market, increasing the supply of good X by 900 units at
each price level, please find the new market supply curve for commodity X. What is
the new market equilibrium price? (Qs’ = 40P – 1100, P’ = 90)
4. A monopolist has the following average revenue (AR) function for its product X:
AR = -Q/2 + 2000
The firm's production cost function is given by:
TC = Q²/2 + 100Q + 300000
Determine the price and output level that maximize the firm's profit (Q = 950, P =
1525). Calculate the maximum profit the firm can achieve at that output level (II =
602500).
5. A monopolist produces product Y at a constant marginal cost (MC) of 3. The
demand schedule for the monopolistic firm is given as follows:
P Qd
10 3
9 6
8 9
7 12
6 15
5 18
a) Determine the demand equation and the marginal revenue equation that the firm
faces. (Pd = -1/3Q + 11, MR = -2/3Q + 11)
b) Determine the output and selling price that maximize the firm's profit (Q* = 12,
P* = 7)
c) Suppose this firm becomes a firm in a perfectly competitive market. What will be
the price and output level to maximize profit? How does the consumer surplus
change in this case? (Q’=24, P’=3, deltaCS = +72)
6. A monopolist faces a demand equation of the market as Q = -3P + 14400, and the
cost function: TC = (1/3)Q² + 200Q + 5000.
a. Determine the output and selling price that maximize the firm's profit. (Q*=3450,
P*= 3650).
b. Determine the price and output levels that maximize revenue (Q’=7200,
P’=2400).
c Suppose this firm becomes a firm in a perfectly competitive market. What will be
the price and output level to maximize profit? How does the total surplus change in
this case? (Q2=4600, P2=3266,7, change in total surplus = 661250).
7. Given the supply and demand schedules for dragon fruit as follows:
Price (P) Quantity Supplied (Qs) Quantity Demanded (Qd)
8 10 70
16 30 60
24 50 50
32 70 40
40 90 30
a) Determine the supply and demand equations. (Qd = -1.25P + 80, Qs = 2.5P – 10)
b) Calculate the equilibrium price and quantity. (Q* = 50, P* = 24)
c) If the government sets a price floor at P = 28 and commits to purchasing any
surplus, how much will the government spend? (420)
d) With the price floor as in part c, how do consumer surplus, producer surplus, and
total surplus change? (change in CS = -190, change in PS = 175, change in total
surplus = -15)
8. A perfectly competitive firm has a total cost function of TC = 0.5Q² + 4Q + 288.
a) If the market price is $50 per unit, calculate the profit-maximizing output. What
is the firm's profit at this point? (Q* = 46, II = 770)
b) Calculate the firm's break-even price and output. (Q’ = 24, P’ = 28)
c) If the market price is $20 per unit, is the firm making a profit or a loss? Should
the firm continue to produce? (loss, continue to produce)
d) Determine the firm's short-run supply curve. (P = Q + 4 from P > AVCmin)
