Name
.
Class Time & Day
.
IVC
Irvine Valley College
1.
Homework – Price Searcher
Economics 1
Mark McNeil
Use the diagram below to show and explain the following:
$
120
MC
100
80
60
AC
40
AV C
20
D
MR
Ø
5
10
15
20
25
30
35
40
Quantity (1000's)
a.
Is this a price taker or a price searcher? How do you know this?
b.
c.
Show (and clearly label) the profit maximizing or loss minimizing output.
Explain why this quantity is the profit maximizing output. Why not produce one
d.
e.
f.
g.
Show (and clearly label)the amount of per-unit profit or loss.
Show (and clearly label)the area of total profit.
Show (and clearly label)the area of total variable cost.
Show (and clearly label)the area of total fixed cost.
more unit?
Economics 1
P-Searcher Homework
Page 2
$
60
MC
50
40
30
AC
20
AV C
10
D
MR
Ø
5
10
15
20
25
30
35
40
45
Quantity
h. Assume that this firm does not have to charge the same price to all buyers but t it is able to price
discriminate perfectly? What quantity will it produce? (Label this Qpd.) What will happen to its total
revenue? (Use a colored pen or pencil to outline the total revenue. Is there deadweight loss? Explain.
2.
Evaluate the performance (price, quantity produced, and the level of profits) in a market characterized by
oligopoly in each of the following situations:
a. if collusion is effective. Label the price it will charge, Pm; and the quantity produced, Qm. Show
the area of total revenue and label it clearly. (You will need to draw the MR
curve for this section.)
b. if firms are unable to cooperate and instead engage in intense competition. (Label the price it will
charge, Pc; and the quantity produced, Qc. Show the area of total revenue and
label it clearly.)
$
MC
D
Ø
Quantity
Group A
Group B
Economics 1
$
P-Searcher Homework
$
MC
600
600
500
500
400
400
300
300
200
200
100
Page 3
MC
D
100
D
Ø
3.
4.
3 4 5 6 7 8
Ø 1 2 3 4 5 6 7 8
Quantity (1000' s)
Quantity (1000' s)
Assume that you are a producer that is able to price discriminate. The diagrams below show the demand
and marginal cost curves for two different groups (Group A and Group B) in your market. Given this
information:
a. show how many units will you sell to each group. Label these Qa and Qb.
b. show how much will you charge each group? Label these Pa and Pb.
c. which group’s demand is more elastic? Which is less elastic? Which group will be charged the
higher price?
1
2
The following diagram shows the cost and revenue curves for a firm in monopolistic competition.
$
$
MC
MC
AC
AC
AV C
AV C
D
Ø
Quantity
MR
a.
b.
D
Ø
Quantity
MR
In the diagram on the left, show the quantity this firm will produce and the price it will charge; label
these Q1 and P1. Show and label the area of total profit.
Is this a long run or short run price and quantity for this firm? Explain.
c. Use the diagram on the right to show what will be the price and quantity (oh, and perhaps the new
demand curve) in the long run. Explain how this long run price and quantity comes about.