Sample Exam 3 Answers

1 | c |

2 | a |

3 | d |

4 | d |

5 | c |

6 | b |

7 | d |

8 | a |

9 | a |

10 | c |

11. Should you use MP or AP to defend yourself?

12. Cost of using Desktop model = 200 + 0.035Q

Cost of using Larger model =
400 + 0.02Q

Set cost of Desktop = Larger
and solve for critical Q.

13. Cost function

a) $190,000

b) $53

c) $53

d) C = 240 + 45Q + 30I.

14. Competitive Market and Firm

a) Set supply = demand to get market output and then price: Q = 5
(or 500, since Q is measured in 100s); P = 67.50.

b) Set P = MC to get q = 6.5

c) Q = 7.5 (or 750); P = 88.75; q = 8.625

d) No, the new equilibrium in part (c) would generate positive
profits for the firms in the industry. This would attract entry until
price is driven back down to a zero profits point.

15. Longheel Press.

a) Using MP_{L}/MP_{K} = w/r, you can solve for K/L = .077
or K = .077L. Plug K into the cost function and solve for L: C = 150,000 =
(12)L + (52)(.077L). This gives us L = 9375. Given the optimal K/L
ratio, we know that K = 722.

b) Q = 1235