Posted: May 11th, 2022

MSA ETS1112 – Sunrise Juice Company sells its output

Answer all Questions
1. Sunrise Juice Company sells its output in a perfectly competitive
market. The firm’s total cost function is given in the following
schedule:

Output

Total Cost

(Units)

($)

0

50

10

120

20

170

30

210

40

260

50

330

60

430

Total costs include a “normal” return on the time (labor
services) and capital that the owner has invested in the firm. The prevailing
market price is $7 per unit.
a. Prepare marginal cost schedule. (3 Marks)
b. What is the firm’s profit maximizing output level? (2 Marks)
Hint:Please refer to Questions 2 and 4 Tutorial 6 which is alsoP10.2 p.406 of your prescribed textbook.%20Test%202.%20Guide%20Answers.docx#_ftn1″ title=””>[1];
And Homework 1 should also help you.

2.
A firm producing hockey sticks has a
production function given by:.png”>. In
the short run, the firm’s amount of capital equipment is fixed at k= 100. The
rental rate for K is v= $1, and the wage rate for L is w = $4.
a. Calculate the firm’s short-run total cost curve. (1 Mark)
b. Calculate the short-run average cost curve. (1 Mark)
Hint:
This question is exactly the same question with your homework 4, the only
difference I gave you the specific value of w=4 which you didn’t have for the
homework. One would have expected that application of the concept should be
easy and straight forward. I posted the answer to this homework well before the
test; which should have made your study and revision much easier.

3. In a constant cost industry having zero marginal costs, the inverse
demand function is given by P=12-Q. Estimate the equilibrium value of the price
and output for:
a. Monopoly. (1 Mark)
b. Cournot Duopoly. (2 Marks)
c. Perfect Competition. (1 Mark)
Hint:
For Monopoly and Perfect Competition, please
refer to Tutorial 7 Question 2 which is also P12.5 p.495 of your
prescribed textbook; this question compares monopoly versus competitive market
equilibrium; also refer to questions 3 and 4 of the same tutorial.
For Cournot Duopoly we did a lot of questions;
in Class we reworked example on page 513 of your textbook (and I asked you to
do the same at your own time); then during Tutorial 8 we did questions 1
and 2 which is also P13.6 p.542 of your prescribed textbook

4. Recognize each of the following statements as being true or false
and explain why.
a.
A set of strategies
constitutes Nash equilibrium if no player can improve their position given the
strategies chosen by other players.(1 Mark)
b.
A secure strategy is
very conservative and should only be considered if the rival’s optimal strategy
is identical.(1 Mark)
c.
A dominant strategy
is also a secure strategy, but every secure strategy is not necessarily a
dominant strategy.(1 Mark)
d.
In a one-shot game,
the Nash equilibrium is also the best outcome that can be achieved under
collusion.(1 Mark)
Hint
These questions came straight from your textbook
and we defined some of these concepts if not all of them during tutorial 10; I
did emphasise the need to have a clear understanding of all key concepts of
Game Theory. At the end of Game Theory Topic, Chapter 14 of your prescribed
textbook there is a one page summary which defines all these key concepts.

END OF TEST PAPER

[1]Mark Hirschey and
Bentzen M. (2014), Managerial
Economics, 13th edition

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