ECON 342 Exam 1 with Answers (Penn State)

ECON 342 ECON342 Exam 1 Answers (Version 3) (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 = 8q_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 = 8.  Also, the market demand is given by P = 80 –3Q, 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 = $392.  The firm’s variable cost of production is given by TVC = 5q +2q², where q is the quantity of output that the firm produces.  The marginal cost of the firm is given by MC = 5 + 4q.  The market demand for the good is given by Q_d = 355 - 4P, 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 = -128 + 3P.