Tutorial Exercise (Week 6)

1. The total cost (TC) of producing computer software diskettes (Q) is given as: TC =
200 - 5Q+5Q2. (Please keep two decimal places if the answer is not a whole number.)

The marginal cost at Q = 1 is _________.

The average variable cost at Q = 1 is _________.

The average fixed cost at Q = 100 is __________.

Determine the quantity that minimizes average total cost. Q = ________.

2. Forany given level of output:

A) marginal cost must be greater than average cost.
B) average variable cost must be greater than average fixed cost.
C) average fixed cost must be greater than average variable cost.
D) None of the above is necessarily correct.

3. Which of the following relationships is NOT valid?

A) Rising marginal cost implies that average total cost is also rising.
B) When marginal cost is below average total cost, the latter is falling.
C) When marginal cost is above average variable cost, AVC is rising.
D) none of the above

4. The "perfect information" assumption of perfect competition includes all of the

following except one. Which one?
A) Consumers know their preferences.
B) Consumers know their income levels.
C) Consumers know the prices available.
D) Consumers can anticipate price changes.

5. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000
boxes. The market is highly competitive, with boxes currently selling for $100 per
thousand. Conigan's total and marginal cost curves are:

TC = 3,000,000 + 0.001Q2
MC = 0.002Q
where Q is measured in thousand box bundles per year.
a. Calculate Conigan's profit maximizing quantity. Is the firm earning a profit?
b. Analyze Conigan's position in terms of the shutdown condition. Should Conigan
operate or shut down in the shortrun?
7. A competitive market is made up of 100 identical firms. Each firm has a short-run
marginal cost function as follows:
MC = 5 + 0.5Q,
where Q represents units of output per unit of time. The firm's average variable cost
curve intersects the marginal cost at a vertical distance of 10 above the horizontal axis.
Determine the market short-run supply curve. Calculate the price that would make
2,000 units forthcoming per time period. (Note the minimum price at which any
quantity would be placed on the market.)