Introduction to Microeconomics – L1 EG – University of Orleans
Tutorial 6
1. An enterprise sells 1000 units of output at a price of 300 euros per unit. Given that the demand is smaller than
expected, she decides to reduce the price to 250 euros per unit. The demand becomes 1200.
a- Compute the price-elasticity of the demand.
b- How does the total revenue vary?
𝜕𝑝
c- Explain this result by decomposing this change through the expression of the marginal revenue p + y 𝜕𝑦.
2. The actual total costs of the enterprise of ex.1 are CT=45y, where y is the production.
a- What does it imply for the marginal and average costs?
b- Which is the selling price that you would suggest to the managers?
3. Suppose now that the firm is constrained by an authority to behave as in perfect competition.
a- Which would be the price?
b- Which would be the evolution of margin rate?
4. A firm undertook a market analysis in places A and B. She estimated the price-elasticities of the demands at -2 and
-5 on the markets A and B, respectively.
a- On which market is the firm’s influence on costumers stronger?
The total cost linked to total production is CT=40y.
b- Which system of prices is optimal from the managers’ point of view?
5. A firm produces an identical good in two different factories. Suppose that the marginal cost of the first factory is
greater than the marginal cost of the second factory. What should the managers do in order to reduce the production
costs, in order to preserve the same level of output?
a- Close the first factory and produce all the output in the second one.
b- Increase the production of the second factory in order to reestablish the equality of marginal costs.
c- Increase the production of the second factory and reduce the production of the first factory of an identical
amount.
d- Reduce the production of the first factory until the marginal costs become equal.
6. You decide to undertake a business. A technical analysis establishes that there exist 3 production processes,
characterized by the following cost functions:
CTa = y + Ea
CTb = 0,50 y + Eb
CTc = 0,25 y + Ec
Where Ei is the cost of the (fixed) equipment of the process i, i=a, b,c and y is the production.
6a) Write down the average variable costs, the average fixed costs and the marginal costs of every production process.
6b) Indicate the break-even price and the shutdown price for each production process.
6c) A market analysis indicates that your firm will encounter a demand function characterized by a price-elasticity
equal to -2, which is given by:
yd = 1/px, where p is the unitary price of the produced good.
-
Which is the value of x?
Write down the total and marginal revenues.
We know now that Ea=0,2, Eb=0,3 and Ec=0,9. Which production process would you choose?
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