Managerial Economics

Tutorial Sheet-7
Q.1 The market-determined price in a perfectly competitive industry is P=$10. Suppose
that the total cost equation of an individual firm in the industry is given by the
expression: TC= 100+5Q+0.02Q2
(a) What is the firms profit maximizing output level?
(b) What is the firms total profit?
(c) Diagram your answers.
Q.2 A perfectly competitive firm faces the following total variable cost function (where
Q is Quantity): TVC=150Q - 20Q 2 + Q3 .Below what price should the firm shut down
its operations.
Q.3 Hale & Hearty Limited (HH) is a small distributor of B&Q Foodstores, Inc, in a
highly competitive healthcare products industry. The market-determined price of a 100tablet vial of HHs most successful product, Papaya extract, is $.10. HHs total cost
function is given as: TC=100+2Q+0.01Q2
(a)What is the firms profit maximizing output level? What is the firms profit at this
level? Is HH in short-run or long-run competitive equilibrium? Explain.
(b) At P=10, what is HHs break even output level?
(c) What is HHs long run break even price and output level?
(d)What is HHs shutdown price and output level? Does this price-output
combination constitute a short-run or a long-run competitive equilibrium? Explain.
Q.4 Suppose that an industry is dominated by a single-producer and the demand for the
product is: Q=3000-60P.
Suppose further that the total cost function of the firm is: TC= 100+5Q+ (1/480) Q2
(a) What is the monopolists profit maximizing price and output?
(b) Given your part a, what is firms economic profit?
Q.5 Consider the monopolist that faces the following market demand and total cost
functions: Q =22-P/5 TC=100-10Q+Q2
(a) Find the profit-maximizing price (Pm) and the output (Qm) for this firm. At this
price-quantity combination, how much is the consumer surplus.
(b) How much economic profit is this monopoly earning?
(c) What if anything, you can say about the redistribution of income from consumer
to producer?

(d) Suppose that government regulators required the monopolist to set the selling
price at the long-run, perfectly competitive rate. At this price, what is the
consumer surplus?
(e) Relative to the perfectly-competitive long-run equilibrium price, what is the
deadweight loss to society at Pm?