MBA 5311 Final Exam

MBA 5311 Final Exam

1) (10 points) Suppose a firm faces the following production function:

a. What is the average product of labor, holding capital fixed? What is the marginal product of labor?
b. What are the APL and MPL when K is fixed at 16?

2) (10 points) To produce a recorded Blu-ray disc, q=1, a firm uses a blanc disc, D=1, and the services of a recording machine, M=1, for one hour. Draw an isoquant for this production process. Explain the reason of its shape.

3) (12 points) If the cost function for John’s Shoe Repair is

a. What is the firm’s marginal cost function? What is the profit maximizing level of output if the market price is p= 25?

b. What is its supply curve? What is the profit/loss?

4) (12 points) If a monopoly’s inverse demand curve is P=13-Q and its total cost function is TC=25+Q+0.5Q2,

a. What Q* maximizes the monopoly’s profit (or minimizes its loss)? At Q*, what is the price and the profit? Should the monopolist operate or shut down?

b. If this would become a perfect competitive market, what would be the Qpc and Ppc?

5) (12 points) If a monopoly faces an inverse demand curve of P=90-Q, has a constant marginal cost and average cost of 30, and can perfectly price discriminate,

a. What is its profit? What are the consumer surplus, welfare, and DWL?

b. How would these results change if the firm were a single-price monopoly?

6) (12 points) A duopoly faces an inverse demand function of P=120-Q. Both firms have a constant marginal cost of 20.

a. Calculate the output of each firm, the market output and price in a collusive equilibrium?

b. Calculate the output of each firm, the market output and price in a Cournot equilibrium?

7) (12 points) Assume a monopolist faces a market demand curve What is the profit-maximizing level of output? What are profits? Graph the marginal revenue, marginal cost, and demand curves, and show the area that represents deadweight loss on the graph.

8) (10 points) In Question 7 above, what would price and output be if the firm priced at socially efficient (competitive) levels? What is the magnitude of the deadweight loss caused by monopoly pricing?

9) (10 points) In a Cournot duopoly, each firm has marginal cost MC = 20, and market demand is Q = 100 – 1/2p. What are the best-response functions of each firm? What is the best output level for each? How does the total output level compare to the cartel output level?

10) (10 points) In the following game, players must move simultaneously. How many Nash equilibria are there? Which will occur without collusion? Which will occur if collusion is allowed?

Firm 2


A 3, 1 7, 0

Firm 1

B 2, 4 5, 3


EXTRA CREDIT (12 points)

11) Draw two graphs side by side. In the right graph draw a U-shaped average cost curve, a U-shaped average variable cost curve and the corresponding marginal cost curve. In the left graph, draw a downward sloping market demand curve and an upward sloping supply curve that would generate a negative profit, but that keep the firm operating in the short run. Explain what would happen in the long run?

Here’s the SOLUTION

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