Economics assignment #51911

Question 1. Suppose you are working as a consultant for a perfectly competitive firm that is worried about its policies in the short run. What would you recommend in terms of quantity changes (raise, cut, shut down or stay put) and price changes (raise, cut, stay put) in each of the following two situations:
a) [10 points] P = $20; MC = $5; TVC = 1250; AFC = $10; TFC = $500.
b) [15 points] AVC is at its minimum; AFC = $5; ATC = $9; TC = $90; TR = $50.
[P = price; Q = quantity; AVC = average variable cost; ATC = average total cost; TC = total cost; MC = marginal cost]


Question 2. [25 points] Suppose the demand curve representing phone calls placed by Michconsin Electronics (ME) remains unchanged over time and is linear. ME currently uses MCI for phone calls and places 100 calls per month at a price of $0.80 per phone call. ME used to subscribe to AT&T and placed 90 calls per month at a price of $.90 per phone call, but switched to MCI to take advantage of the lower price. To lure customers like ME, AT&T recently modified its pricing structure to the following: $1.00 per call for the first 60 calls, $.80 per call for the next 40 calls, and $.50 per call for all remaining calls. Calculate the change in consumer surplus for ME if ME switches back to AT&T.