Winter 2019 - Review Questions – ECON 205
Question 1: Use the information in the graph to answer the questions below:
i) What is the profit maximizing level of output and what price will the firm charge for its profit maximizing
level of output?
ii) How much is the total revenue? Show your calculations.
iii) How much is the total cost? Show your calculations.
iv) Is there a profit or loss? How much?
v) Should this firm shut down? Why?
Question 2: The table below shows output and total cost data for a firm in a perfectly competitive market. This
firm sells its output for a price of $50.
Quantity
Total
Price
Cost
0
1
2
3
4
5
6
7
$50
90
120
140
170
215
260
320
8
400
Total
revenue
Marginal
revenue
Marginal
Cost
Profit
a. Complete the above table. Give answers to two decimal places. Add extra columns if you need.
b. What is the profit maximizing level of output for this company, and what is the corresponding profit/loss?
c. If the price in the market fell to $40, how much would this firm produce, and how much profit or loss would
it make?
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Question 3 - Use the information in the graph to answer the following questions for a firm:
For a monopolist, identify the area that represents:
a) total revenue
b) total cost
c) total profit/loss
Question 4 - Two restaurants, in a small town, compete in the market for pizza. Each restaurant must decide
whether to advertise or not. The potential monthly profits for these firms are shown below (in thousands $).
FIGURE 10-5
Restaurant A
Advertise
25
Don’t Advertise
60
Advertise
25
Restaurant
B
20
Don’t
Advertise
Q1.
Q2.
20
50
60
50
Referring to Figure 10-5, what can be said about dominant strategies?
Referring to Figure 10-5, what is the cooperative optimal outcome?
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Question 5
i) What market structure is this? What is the profit maximizing level of output ?
ii) Is there a profit or loss? How much?
Question # 6
Draw a graph for each – a perfectly competitive firm operating in short run showing its shutdown point,
breakeven point and profit; monopolist operating showing profits/loss/breakeven; monopolistically
competitive firm showing short run profits, long run equilibrium
Chapter 7 – Question 6, 9, 16, 19
Chapter 8 – Question 7, 8, 9, 10, 12, 13
Chapter 9 – Question 10, 12, 13, 15
Chapter 10 – Question 9, 10, 12, 13, 17, 24, 26
Chapter 11 – Question 2, 3, 4, 5, 7, 8
Chapter 12 – Question 1, 17
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