Regulation and Antitrust Policy (Econ 180) Drake University, Spring 2011 William M. Boal Course page: www.drake.edu/cbpa/econ/boal/180 Blackboard: bb.drake.edu Email: william.boal@drake.edu

Competitive Firms

### Version A

I. Multiple choice [4 pt each: 36 pts total]

(1)e. (2)b. (3)a. (4)b. (5)f. (6)a. (7)e. (8)b. (9)c.

II. Problems

(1) [Short-run cost: 28 pts]

1. SAVC = \$20, \$15, \$20, \$25;
2. SAFC = \$24, \$12, \$8, \$6;
3. SATC = \$44, \$27, \$28, \$31;
4. SMC = \$20, \$10, \$30, \$40;
5. Shutdown price = \$15;
6. Breakeven price = \$27;
7. 60 units.

(2) [Short-run cost curves and supply: 30 pts]

1. \$11;
2. \$8400;
3. \$8;
4. \$4;
5. 1700 doorknobs;
6. profit (because price is greater than breakeven price);
7. 1300 doorknobs;
8. loss (because price is less than breakeven price);
9. zero doorknobs (because price is less than shutdown price);
10. loss (because price is less than breakeven price).

III. Challenge question

Now SAFC = SATC - SAVC. At Q=500, for example, SATC = \$16 and SAVC = \$6, so SAFC = 16 - 6 = \$10. Therefore, SFC = \$10 x 500 = \$5000. (Calculations at different values of Q should result in an identical final answer for SFC.)

### Version B

I. Multiple choice [2 pt each: 18 pts total]

(1)c. (2)a. (3)a. (4)c. (5)e. (6)c. (7)b. (8)d. (9)a.

II. Problems

(1) [Short-run cost: 28 pts]

1. SAVC = \$4, \$3, \$3, \$4;
2. SAFC = \$12, \$6, \$4, \$3;
3. SATC = \$16, \$9, \$7, \$7;
4. SMC = \$4, \$2, \$3, \$7;
5. Shutdown price = \$3;
6. Breakeven price = \$7;
7. 150 units.

(2) [Short-run cost curves and supply: 30 pts]

1. \$16;
2. \$6000;
3. \$10;
4. \$4;
5. 900 doorknobs;
6. profit (because price is greater than breakeven price);
7. 700 doorknobs;
8. loss (because price is less than breakeven price);
9. zero doorknobs (because price is less than shutdown price);
10. loss (because price is less than breakeven price).

III. Challenge question

Now SAFC = SATC - SAVC. At Q=500, for example, SATC = \$12 and SAVC = \$4, so SAFC = 12 - 4 = \$8. Therefore, SFC = \$8 x 500 = \$4000. (Calculations at different values of Q should result in an identical final answer for SFC.)