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Microeconomics

2002. Microeconomics. Question 1. P. D. Q. Claire invented product X and obtained a patent to prevent other firms from producing X. She is currently producing product X and earning positive economic profits.

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Microeconomics

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  1. 2002 Microeconomics Question 1

  2. P D Q • Claire invented product X and obtained a patent toprevent other firms • from producing X. She is currently producing product X and earning • positive economic profits. • Using a correctly labeled graph, show each of the following for Claire if she maximizes profits. (i) Output (ii) Price (iii) Economic Profit MC B ATC Pm TR = 0, Pm, B, Q C A TC = 0, A, C, Q Econ. Profit = A, Pm, B, C 0 Q MR

  3. Assume that Claire hires labor in a perfectly competitive labor • market. Using correctly labeled side-by-side graphs for the labor • market and for Claire, show each of the following. (i) The wage rate of the workers (ii) The number of workers Claire will hire Claire’s firm is a “wage taker” W SL W WL MFC (SL) WL MRP (DL) Dl QL qL QL QL Claire’s Firm Market

  4. (c ) Assume now the patent expires and many firms produce the identical product that Claire produces. Using correctly labeled side-by-side graphs for the industry and the firm, show each of the following in long-run equilibrium. (i) Industry price and output (ii) The typical firm’s price and output The individual firm is a price taker P S P MC P P D q Q Q Q Claire’s Firm Market

  5. (c ) continued (i) Industry price and output (ii) The typical firm’s price and output P S P MC ATC P P D q Q Q Q Claire’s Firm Market In the long run, competitive firm will earn economic profits = 0.

  6. MFC MRPC MRPM INPUT or FACTOR Market Review P Qty

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