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##### Economics Two Problems

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solution

**Question**

Question;1. Consider a monopoly firm with the demand and cost curves below. Assume that the firm is operating in the short run with the plant designed to produce 400 units of output optimally.a. What output should be produced?b. What will be the price?c. How much profit is made?d. If the firm can change plant size and move into the long run, what will be output and price?e. Will profit increase? How do you know?2. Suppose a firm is considering two different activities, X and Y, which yield the total benefits presented in the schedule below. The price of X is $2 per unit and the price of Y is $10 per unit.Level ofActivity0123456Total benefit of activity X(TBx)$0305472849298Total benefit of activity Y(TBy)$0100190270340400450a. The firm places a budget constraint of $26 on expenditures on activities X and Y. What are the levels of X and Y that maximize total benefit subject to the budget constraint?b. What is the total benefit associated with the optimal levels of X and Y in part a?c. Now let the budget constraint increase to $58. What are the optimal levels of X and Y now? What is the total benefit when the budget constraint is $58?

Paper#55575 | Written in 18-Jul-2015

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