ECON 1150

1. Suppose your boss comes to you with the following information – at the current level of Output, Q (Q = 100), Marginal Cost, MC = $7.00, Average Variable Cost, AVC = $5.00, and Average Total Cost, ATC = $9.00. As the only legal producer of ECON 1150 Assignments, here at Kwantlen, the firm faces a downward sloping Demand Curve, D0 of P = 18 – 0.0857[Q], which has a Marginal Revenue curve, MR equal to P = 18 – 0.1714[Q]. i. Given the information given to you draw a graph approximating what the entire Marginal Cost, MC curve along with the Average Variable Cost, AVC curve, and Average Total Cost, ATC curve would look like showing all the appropriate relationship(s) among these three curves. AND, include the Demand curve, D0 and Marginal Revenue curve, MR as well. ii. If the Marginal Cost, MC curve and the Marginal Revenue, MR curve intersect at a price of $4.80, find the level of Quantity, Q that would represent the firm’s Profit Maximizing level of output. Explain carefully if the firm is currently operating (1) at its Profit Maximizing position – why or why not? (2) if not, would the firm want to increase or decrease output to arrive at its Profit Maximizing position? iii. At the firm’s Profit Maximizing position, is the firm operating at a positive economic profit, a negative economic profit, or at a zero-economic profit? Explain carefully why is this the case? (4 Marks) iv. At the firm’s PROFIT MAXIMIZING level of economic profit (as determined in part iii) what would be the behaviour in the MARKET: market entry, market exit, or neither? Why or why not? 2. Suppose in your research you found two identifiable groups of assignment consumers: Assignment Lovers, AL and Assignment Dislikers, AD. The demand and marginal revenue for AL is P = 20 – 0.05 [Q] and MR = 20 – 0.10[Q] whereas for the dislikers group, the demand is P = 15 – 0.10[Q] and the Marginal Revenue, MR for dislikers is MR = 15 – 0.20[Q]. The Marginal Cost for each assignment is $4.80 i. Briefly describe the two conditions required to effectively Price Discriminate AND WHY the condition is necessary? ii. Determine the Quantity, Q and the Price, P the firm would sell assignments to each of the Lovers and Dis-likers groups.