Microeconomics, Module 5, “The Behavior of Firms”

Homework assignment

(The attached PDF file has better formatting.)

Profit Maximization

A firm faces a demand curve of P = 130 – 5Q. The marginal cost for this firm is 20 + Q. The fixed costs are 500. Assume that the firm produces a quantity and charges a price to maximize profits.

A.    What is the marginal revenue curve facing the firm?
B.    What is the quantity produced by the firm?
C.    What is the equilibrium price charged by the firm?
D.    What are the total variable costs of the firm?
E.    What are the total costs of the firm?
F.    What is the total revenue of the firm?
G.    What is the net profit of the firm?

Should a question like part D of this homework arise on the exam, will there be two correct answers, or should we do both the discrete and continuous methods to determine the correct answer?

[NEAS: If the exam problem gives a function, use the continuous method. If the exam problem gives a table with discrete numbers of goods (1, 2, 3, etc), use the discrete method. The choices in the exam problem will always be sufficiently different that both methods give the same answer.]