Question

Multiple choice

1. ABC Company produces scarves from fabric according to Q = 10 + 4F − (1/3)F³, where F is the amount of fabric it uses. If fabric is free and scarves sell for $20, what is the amount of fabric that maximizes ABC's profit?

Select one:

a. 0

b. 2

c. 6

d. 8

e. 4

2.Assume a competitive market with a demand curve equal to QD = 10,000 − 40P . The long-run total cost function TC = 2,000 + 20q + 5q² is the same for all firms in this market. What is the long-run equilibrium output in this industry?

Select one:

a. 2200 units

b. 2600 units

c. 3200 units

d. 1200 units

e. 1800 units

3.SpaceX is the only rocket producer in the US. When Space X chooses the price for its rockets:

Select one:

a. it will never maximize profit.

b. it will always produce the same quantity of rockets as if it decided the quantity of rockets to begin with.

c. it will always produce less than if it decided the quantity of rockets.

d. it will always produce more than if it decided the quantity of rockets.

4. SpaceX is the only rocket producer in the US. When Space X chooses the price for its rockets:

Select one:

a. it will never maximize profit.

b. it will always produce the same quantity of rockets as if it decided the quantity of rockets to begin with.

c. it will always produce less than if it decided the quantity of rockets.

d. it will always produce more than if it decided the quantity of rockets.

Answer 1

1) If there is no cost then Profit Equal to total revenue.

Total revenue is Maximizing where MR=0

Q=10+4F-(F^3)/3

TR=20*(10+4F-(F^3)/3=200+80F-20*(F^3)/3

MR=80-20*F^2

MR=0

0=80-20F^2

F^2=4

F=2

So F=2 will Maximizing the profit.

2)In long run all firms earn zero Profit,so

P=AC=MC

TC=2,000 + 20q + 5q2

AC=2000/Q+20+5q

MC=20+10Q

AC=MC

2000/Q+20+5q=20+10q

2000/Q=5q

400=Q^2

Q=20

So In long run equilibrium every firm will produce 20

AC=MC=P=20+10*20=220

Market equilibrium QUANTITY in long run,

Qd=10,000-40*220=1200

Option D is correct

3)&4)

Space X , facing demand,

P=10-Q

And MC=3

If it decide QUANTITY,.

P=10-Q

MR=10-2Q

MR=MC

10-2Q=3

Q=7/2=3.5

If it decide price,

P=10-Q

Q=10-p

TR=10p-p^2

TC=3(10-p)=30-3p

Profit=10p-p^2-30+3p=13p-p^2-30

Derivation of profit with respect to P and put equals to zero to obtain Profit Maximizing price.

∆profit/∆p=13-2p=0

13-2p=0

P=13/2=6.5

Putting p,into Demand function

Q=10-6.5=3.5

In both case QUANTITY will be same

So option B is correct