marginal cost curve for a firm that has constant marginal costs of production

by | Oct 7, 2019 | Main

  1. (20) Sketch a marginal cost curve for a firm that has constant marginal costs of production up to its capacity of 500 units but which cannot increase its output beyond that capacity.
  2. (80) Suppose market demand for a good is ??=100 –2? and the marginal cost of supplying the good is ??=40+8?.
    (a) (i) What is the MB of the 5th unit? (ii) What is the TB from 5 units? (iii) What is the MC of the 5th unit? (iv) What is the TC of 5 units? (v) What is the NB of 10 units? (vi) Which unit has MB of $40? Of $60? (vii) Which unit has MC of $40? Of $60? (viii) How much benefits would a 6th unit add to total benefits? (ix) How much cost would a 6th unit add to total cost?

(b) Calculate the following assuming the market acts competitively: market Q, market P, consumer surplus, producer surplus, net benefits.

(c) Repeat part b assuming the market is a monopoly.

  1. (60) (a) Consider that 2 agents make up the demand side of a market. Person A’s marginal benefits are ??0=60−0.25?0, and person B’s marginal benefits are ??3= 60−?3. Find and graph the equation for market-level marginal benefits.
    (b) Consider that 2 agents make up the supply side of a market. Producer 1’s marginal cost is ??4=5+0.5?4, and producer 2’s marginal cost is ??5=5+?5. Find and graph the equation for market-level marginal cost.
    (c) Consider that 3 agents make up the supply side of a market. Producer 1’s marginal cost is ??4=3+0.3?4, and producer 2’s marginal cost is ??5=4+0.6?5, and producer 3’s marginal cost is ??5=1+0.1?7. Find and graph the equation for market-level marginal cost.
  2. (80) Irrigation water is supplied in units called acre-feet. Suppose that the marginal cost of supplying each acre-foot of irrigation water is $40, and that market demand for irrigation water is P = 100 – 2q.
    (a) Graph this market. Assume it is perfectly competitive.
    (b) What is the privately efficient allocation of irrigation water?
    (c) Calculate market participants’ net benefits.
    (d) How are net benefits distributed between consumers and producers in this market?

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