Sample Exam 3 Answers
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
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 MPL/MPK = 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