ASSIGNMENT
Recall: You will receive the highest of the points, out of a maximum possible 40, you earn between the two parts (Part-I and Part-II) . Your answer (in pdf or word) must be uploaded on canvas by 11:59 pm (CST) on DECEMBER 21, 2022 (Wednesday).
PART-I.
Question 1. [15 points] Is the following (italicized) statement true or false? Explain.
Marginal cost rises when marginal product rises.
Question 2. Suppose you are a consultant for a perfectly competitive firm seeking an assessment of 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, or stay put) in each of the following situations (a through e):
a. [5 points] P = $210; MC = $205; AVC = $206.
b. [5 points] P = $210, MC = $210, AVC= $206.
e. [5 points] P = $210, MC = $210, AVC = $211.
d. [5 points] P = $210; MC = $205; AVC = $212.
e. [5 points] P = $ 210, MC = $212, AVC = $206.
[Notations/Abbreviations: P = price; AVC = average variable cost; MC = marginal cost]
PART-II.
Question 1. Suppose you are a consultant for a natural monopolist seeking an assessment of 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, or stay put) in each of the following situations (a through e):
a. [5 points] MR = $298; MC = $348; AVC = $288
b. [5 points] MR = $148; MC = $98; AVC = $138
c. [5 points] P = $269; MC = $319; AVC = $289
d. [5 points] MR = $150; MC = $100; AVC = $140
e. [5 points] MR = $288; MC = $338; AVC = $278
[Notations/Abbreviations: P = price; MR = marginal revenue; AVC = average variable cost; MC = marginal cost]
Question 2. [15 points] The demand for seats per game, at a local stadium that seats a maximum of 40 million per game, is P = 22 – 0.2Q where P is the price of a ticket and Q represents the number of seats (expressed in millions). Assume that all seats and all games are the same, and marginal cost = $10 = average cost. If the per-ticket price must match the marginal cost, calculate the consumer surplus per game.
