ECON 342 ECON342 Exam 1 with Answers

ECON 342 ECON342 Exam 1 Answers (Version 2) (Penn State University)

1.  (40 Total Points) Suppose there are two firms operating in a market.  The firms produce identical products, and the total cost for each firm is given by C = 2q_i, i = 1,2, where q_i is the quantity of output produced by firm i.  Therefore the marginal cost for each firm is constant at MC = 2.  Also, the market demand is given by P = 50 –4Q, where Q= q₁ + q₂ is the total industry output.

2.  (20 Total Points) Suppose in the short run a perfectly competitive firm has a fixed cost , F = $144.  The firm’s variable cost of production is given by TVC = 4q +4q², where q is the quantity of output that the firm produces.  The marginal cost of the firm is given by MC = 4 + 8q.  The market demand for the good is given by Q_d = 406 - 2P, where Q_d is the total quantity demanded and P is the price of the good.  Also, the market supply is given by Q_s = -50 + 4P.