ECON 3551 Midterm Exam – The demand, marginal revenue, marginal cost

Economics 3551  
Managerial Economics

Practice Second Midterm Exam
Questions 1 – 7
Below are the demand, marginal revenue,
marginal cost, average cost functions for the Bungle
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Firm.
Fixed cost is $140,00.

1.
a=
2.
b =
3.
c =
4.
d =
5.
e =
6.
f =
7.
Shade in the area that represents the profits of the firm. What are the profits of the firm?
Questions 8 – 12
Pauline the perfect competitor can sell all
of the output she wants at a price of $800 per unit. She has a total cost function of: TC =
140,000 + 80Q + .07Q2.
8.
Calculate Pauline’s profit maximizing quantity
and her maximum profits.
9.
Calculate the quantity at which average cost
is a minimum. What is minimum average
cost?
10. Graph the demand, marginal
revenue, marginal cost and average cost functions.
11. Shade in the area that
represents the profits of Pauline’s firm.
12. Graph the total revenue and
total cost functions and show the point at which Pauline is maximizing profits.
Questions 13 – 16
Avatar Aviation is operating at the
intersection of the following two demand functions:
Q1 = 16,000 – 8P1 and Q2 = 9,200 –3P2.
13. Calculate the current price
and quantity and current revenue.
14. One of Avatar’s demand
functions exists if all other airlines follow Avatar’s pricing policies and the
other demand function exists if no other airlines follow Avatar’s pricing
policies. Which is which and why?
15. Assume Avatar raises its
price by $10 per ticket and no one follows the price rise. By how much can Avatar expect its revenue to
change and in what direction?
16. Now assume that Avatar raises
its price by $10 and that everyone else follows the price rise. By how much can Avatar expect its revenue to
change and in what direction?
Questions 17 – 21
Eagle Eye Electric has fixed costs of $3,500,000
and a constant marginal cost of $110.
The demand facing Eagle Eye can be written as: Q = 25,000 – 8P.
17. Assume Eagle Eye is an
unregulated monopoly. Calculate the
profit maximizing price and quantity and the maximum profits of the firm.
18. Graph the demand, marginal
revenue, marginal cost and average cost functions facing Eagle Eye.
19. Shade in the area that
represents Eagle Eye’s profits on your graph.
20. Calculate the elasticity of
demand at the profit maximizing price and quantity.
Now assume eagle Eye becomes regulated and the
regulator sets price = average cost.
What quantity and what price does this correspond to?
Questions 22 – 25
Sandra Surgeon faces the following demand
function from private patients: Q = 12,000
– 5P. Sandra has the following cost
function: TC = 110,000 + 70Q + .07Q2.
21. Calculate Sandra’s profit
maximizing price and quantity.
23. Calculate Sandra’s maximum
profits if she only sees private patients.
24. Now assume that Sandra has been offered $850 per patient to see
government patients. Calculate the
number of private patients and government patients that Sandra will see.
25. Calculate Sandra’s profits if she sees both government and private
patients.
Questions 26 – 30
The demand facing the Windever Firm is Q =
13,000 – 8P. The production function for
the firm can be written as: Q = 7K1/2L1/2. The cost per unit of K is $800 and the price
per unit of L is $1,200.
26. Calculate the profit maximizing amount of K and L.
27. Calculate the profit maximiz8ing price and quantity.
28. Calculate the maximum profits.
29. Calculate the marginal product of labor at the profit maximizing K
and L.
30. Calculate the marginal revenue at the profit maximizing Q and P.
Questions 31 – 35
Johnson Motors builds diesel engines in two
facilities but sells them in one market.
The overall demand for the engines can be written as Q = 17,000 –
5P. The total cost of production in each
facility can be written as:
TC1 = 180,000 + 80Q1 + .04Q12
TC2 = 120,000 + 30Q2 + .08Q22
31. Calculate the amount of Q
that will be made in each facility if Johnson is to maximize profits.
32. Calculate Johnson’s maximum profits.
33. Calculate the marginal cost in each facility at the profit
maximizing level of output.
34. Calculate the quantity in each facility at which average cost is a
minimum. Calculate minimum average cost
in each facility.
35. Graph the marginal cost, average cost and average variable cost in
facility one.