Question 1. 40% Given that Bill & Partners is a competitive firm producing internet application software, operating at the output price of $10,000 with profit maximizing output level at 50 units. The total (economic) cost of producing 50 units is $600,000 and the fixed cost is the 10% annual interest payment of borrowing $4,000,000 in the capital market. a. Construct a demand-supply diagram for the given information. b. Determine the short run profit for the firm contemporaneously. What will you suggest the owners for Bill & Partners as a Micro-economist? c. Due to the booming of internet, the demand for application development increases and the output price per unit of the software increase from $10,000 to $12,000. Draw the new demand curve as in the diagram in part a. Are there any change in profit situation for the firm and what will be your suggestion to the owners for Bill & Partners again? d. Given the quantity demand for internet application software is QD = 600 – P/1000, what is the average number of software will be output by Bill & Partners and how many of the competitive firms will remain in the industry? Question 2. 30% (C&F, P191)
Q TFC TVC 0 12 0 1 12 5 2 12 9 3 12 14 4 12 20 5 12 28 6 12 38
Table 1. Data on cost of production of a competitive firm.
Given the above data on cost of production, answer the following questions. a. If the price of output is $7, how many units of output will this firm produce? b. What is the total revenue? c. What is the total cost? d. Will the firm operate or shut down in the short run and in the long run? Explain your answer briefly, if needed, with the aid of diagrams. Question 3. 30% (C&F, p213) In 2000, average hourly wage in manufacturing rose to 13.71, up from $9.80 of 10 years earlier. All else equal, such an increase in wages would be expected to reduce the demand for labor and employment should fall. Instead, the demand for labor has increased dramatically with more than 20 million jobs being created during the decade of the 1990s. Explain this seemingly discrepancy with the aid of diagram(s).
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