Managerial Economics MGCR 293 Practice Questions for Final Examination 2010-11, Part 3
Managerial Economics MGCR 293
Practice Questions for the Final Examination
2010 - 2011
(Part 3)
Please note that these sample questions are chosen from mass tutorial notes in previous years.
Solutions are checked by my Teaching Assistant. Please e-mail me if any errors, calculations or otherwise, are detected.
Regards,
Dr. Salmasi
1) The Lamour Manufacturing Company’s short-run average cost function in 2001 is: AC
= 5+6Q, Where Ac is the firm’s average cost (in dollars per unit of the product), and Q is its output rate.
a. Obtain an equation for the firm’s short-run total cost function.
b. Does the firm have any fixed costs? Explain.
c. If the price of the Lamour Manufacturing Company’s product (per pound) is $2, is the firm making profits or losses? Explain.
a. Because the total cost equals the average cost times the output, the firm’s total cost function is: C=AC Q= 5Q + 6Q2
b. No, since total cost equals to zero when Q=0
c. If price is $2 then total revenue (R) equals 2Q. Thus, the firm’s profit equals:
= R-C=2Q-(5Q+6Q2)=-3Q-6Q2
If Q is greater than zero, must be negative, and therefore means the firm is incurring losses. If the firm is producing nothing, it is incurring neither profits nor losses. Thus, the firm is better off producing nothing.
2) Jacob’s total variable cost function has been calculated to be TVC = 100Q + 30Q² - Q³, where Q is the number of units of output.
a. When marginal cost is a minimum, what is the output level?
Marginal cost = dTVC/dQ
= 100 + 60Q -3Q² , dMC/dQ= 60 - 6Q = 0, 6Q = 60, Q = 10
Therefore, the output level is 10 units.
b. When average variable cost is a minimum, what is the output level?
Average variable cost = TVC/Q = 100 + 30Q - Q²
It is a minimum when dAVC/dQ = 30 - 2Q = 0, Q = 15, Therefore, the output level is 15 units.
Practice questions for the final exam, Part Three (Dr. Salmasi’s sections)
1
c. What is the average variable cost and marginal cost at output level found in
Practice Questions for the Final Examination
2010 - 2011
(Part 3)
Please note that these sample questions are chosen from mass tutorial notes in previous years.
Solutions are checked by my Teaching Assistant. Please e-mail me if any errors, calculations or otherwise, are detected.
Regards,
Dr. Salmasi
1) The Lamour Manufacturing Company’s short-run average cost function in 2001 is: AC
= 5+6Q, Where Ac is the firm’s average cost (in dollars per unit of the product), and Q is its output rate.
a. Obtain an equation for the firm’s short-run total cost function.
b. Does the firm have any fixed costs? Explain.
c. If the price of the Lamour Manufacturing Company’s product (per pound) is $2, is the firm making profits or losses? Explain.
a. Because the total cost equals the average cost times the output, the firm’s total cost function is: C=AC Q= 5Q + 6Q2
b. No, since total cost equals to zero when Q=0
c. If price is $2 then total revenue (R) equals 2Q. Thus, the firm’s profit equals:
= R-C=2Q-(5Q+6Q2)=-3Q-6Q2
If Q is greater than zero, must be negative, and therefore means the firm is incurring losses. If the firm is producing nothing, it is incurring neither profits nor losses. Thus, the firm is better off producing nothing.
2) Jacob’s total variable cost function has been calculated to be TVC = 100Q + 30Q² - Q³, where Q is the number of units of output.
a. When marginal cost is a minimum, what is the output level?
Marginal cost = dTVC/dQ
= 100 + 60Q -3Q² , dMC/dQ= 60 - 6Q = 0, 6Q = 60, Q = 10
Therefore, the output level is 10 units.
b. When average variable cost is a minimum, what is the output level?
Average variable cost = TVC/Q = 100 + 30Q - Q²
It is a minimum when dAVC/dQ = 30 - 2Q = 0, Q = 15, Therefore, the output level is 15 units.
Practice questions for the final exam, Part Three (Dr. Salmasi’s sections)
1
c. What is the average variable cost and marginal cost at output level found in