**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 B

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?