Sample Exam 3 Answers
| 1 | c |
| 2 | c |
| 3 | a |
| 4 | c |
| 5 | c |
| 6 | d |
| 7 | e |
| 8 | d |
| 9 | c |
| 10 | b |
11.
12.
13.
14. Cost function
a) $150,000
b) $26
c) $26
d) C = 170 + 17Q + 25I.
15. Pizza
a) If w = 7, then MC = 10. This means that P will equal
$10 also. Plugging P = 10 into the demand equation gives Q = 10,000. Since
there are 100 firms in the industry, each individual firm will produce q = 100.
Since P = AC, each firm is earning normal profits and there is no incentive for
firms to enter or exit the industry.
b) If w = 8.40, then MC = 12 = P. At the higher
price, market output falls to Q = 7000 and the optimal output for the 100 firms
is 70 pizzas per firm. Since this is also a long-run equilibrium, there is
no incentive for firms to enter or exit.
16. Acme Company.
a) Using MPL/MPK = w/r, you can solve for K/L = .267
or K = .267L. Plug K into the cost function and solve for L: C = 166,500 =
(10)L + (25)(.267L). This gives us L = 9990. Given the optimal K/L
ratio, we know that K = 2664.
b) Q = 147,195