ECON 102
Homework 4
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Read these instructions carefully!
- Carefully answer each of the questions below.
- You can write or type your answers for the questions EXCEPT ANY GRAPHS MUST BE COMPLETED BY HAND (NOT USING THE DRAWING TOOLS IN WORD OR ANY OTHER PROGRAM).
- Please put your name and PSU ID number at the top of the 1st page.
- You may use as many sheets of paper as you need.
- When you are finished, scan your entire document (including the parts you typed and the parts done by hand).
- Save the file on your computer (.PDF format preferred) and then upload it to the ANGEL drop box for this homework assignment.
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1. (25 total points). You are given the following information about the costs of a perfectly competitive firm.
| Quantity | TFC | TVC |
| 0 | 45 | 0 |
| 1 | 45 | 20 |
| 2 | 45 | 35 |
| 3 | 45 | 45 |
| 4 | 45 | 75 |
| 5 | 45 | 120 |
| 6 | 45 | 180 |
You are hired to determine the profit-maximizing quantity of the firm for different market prices. Complete the table below.
| Market Price | Profit-maximizing level of output | Total Revenue | Total Cost | Profit |
| $14 |
| $18 |
| $44 |
| $53 |
| $70 |
2. (14 points) “The short-run supply curve of a perfectly competitive firm is the firm’s marginal cost curve.”
Carefully explain the two exceptions to the statement above.
3. (21 points) Suppose that, in a perfectly competitive market at the profit-maximizing quantity, the market price is greater than average total cost. Carefully explain what will happen to the number of firms, the market supply, and the price of the good as we move from the short run to the long run.
4. (40 total points) Suppose a monopolist faces the following demand curve:
P = 596 – 6Q. Marginal cost of production is constant and equal to $20, and there are no fixed costs.
a) (8 points) What is the monopolist’s profit-maximizing level of output?
b) (8 points) What price will the profit-maximizing monopolist charge?
c) (8 points) How much profit will the monopolist make if she maximizes her profit?
d) (8 points) What would be the value of consumer surplus if the market were perfectly competitive?
e) (8 points) What is the value of the deadweight loss when the market is a monopoly?