Question 2:1
Imagine you start a chain of private schools. To start up your business, there is a
$3,000,000 fixed cost, and the marginal costis600Q (where Qisthe total number of
students being education by schools in the chain). I
1
a. (3 points) Sketch the average total cost, average variable cost, and marginal cost
curves for your business over the range Q=[:0–15,000 ] 
= = = =
1
b. (3 points) What number of students could you educate under the three following
marketclearing prices?
1
a. $450,000.
1
b. $300,000
1
C $50,000+
1
d. $3000+
1
1
C. (2 points) We have studied that the supply curve is essentially the quantity the
firm offers at each price. Graph the supply curve for your business over the set of
positive prices where you teach more than 0 students and fewer than 100,000 of
them.
T
1
T
T
d. (2 points). Compare a and c. What is the relationship between marginal cost and
supply for your (perfectly competitive) business?
Question 3:1
Consider the following graph, depicting the price of goods and costs facing a firm
producing tablet computers over different quantities produced: 1
Dollars
ATC
MC
P
AVC
Quantity
Using labeled points (e.g., a square with four corners labeled A, B, C, and Dwouldbe
ABCD): 1
Ã˜Â§Ã™â€žÃ˜Â¹
a. (2 points)Label the equilibrium quantity sold assuming the firm actsinits own
best interest.
1
b. (2 points) Label the area comprising the profit of selling at this quantity
1
C. (2 points) Label the area of the graph which shows the fixed costs of production.
1
d. (2 points)What areas comprise the total cost of production at the equilibrium
quantity?
Question 4:1
There are two schools which offer MA degrees in economics and education: Columbia
and Stanford. The marketleveldemand curveforMA degreesisQ=1,5003P. The
marginal cost each school faces is 10Q
1
a. (2 points)Using Bertrand Competition, calculate the equilibrium price and
quantity each firm produces.
b. (3 points).Using Cournot Competition, calculate the equilibrium price and quantity
each firm produces.
1
C. (4 points)Using Stackleberg Competition, and assuming Columbia is the first
mover, calculate the equilibrium price and quantity each firm produces.
1
1
Now imagine California passes a new rent ordinance making Stanford pay extra for
international students. Its marginal cost is now 15Q. Columbia’s marginal cost remains
as it was earlier.
1
d. (5 points) Under these new marginal cost curves, use CournotCompetition to
calculate the equilibrium price and quantity each firm produces. I
e. (6 points). Now imagine Stanford attempts to differentiateits goods. The new
demand functions for the two schools are Qs=302Ps+Pc and Qc=322Pc+Ps.
Each firm faces a constant marginal cost of 1. Use Bertrand Competition with
Differentiated Goods to determine the equilibrium price and quantity eachfirm
produces. I
Question5:1
Imagine you are a producer of consulting services for educational startups. I
a. (2 points) First, consider entering a market where there is perfect competition.
What price would you offer?
1
b. (2 points). Now assume you face the following costfunctions:
MC = 4 +3Q
FC = 10.–
=
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At what price would you choose to produce exactly 10 units?Ã¢â‚¬Å“
Ã˜Â§Ã™â€žÃ˜Â¹
C. (2 points) What is your producer surplus at this price?”
d. (1 point) Now.imagine you sell at this price, and AVC=5+Q. In the shortrun,
would you be earning positive, negative, or zeroprofit?
T
===
e.
=
(3 points). Nowimagine you find an untapped market where you will be the
monopoly provider. The demand curve is given by Q= 200–10P. Marginal cost
is given by MC=0.5Q. What price will you sell your consulting at, and what
quantity will clear the market?
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