Question 1

a. Explain why if the difference between total revenue (TR) and total cost (TC) is at its maximum value, then marginal revenue (MR) must equal marginal cost (MC).

[5 marks]

b. Explain what happens to output, price, and economic profit in the short run and in the long run in a competitive market following the adoption of a new technology that lowers production costs.

[8 marks]

Question 2

The following information describes the monopolist's demand, marginal revenue, total cost, and marginal cost:

Demand: P = 10 - Q

Marginal Revenue: MR = 10 - 2Q

Total Cost: TC = 3 + Q +0.5Q2

Marginal Cost: MC = 1 + Q

where Q is quantity and P is the price.

a. How many units of goods does the monopolist produce? At what price are they sold? What is the monopolist's profit?

[6 marks]

b. If this country opens the trade with other countries, what happens to domestic production of goods? To domestic consumption on goods? Does this monopolist export or import the goods? Assume the price of the good is $6 in the world market.

Question 4+ Use the following figure, which shows the situation facing ABC Bikes, a produce of mountain bikes, to answer the following equations. The demand and costs of other bike produces are similar to those of ABC Bikes.+ 400 350 300 Price and cost (dollars per bike) 250 200 150 100 MR 50 0 TOO 200 Quantity (mountain bikes per week) + a. Calculate the firm's economic profit or economic loss.+ [3 marks]+ b. Point out the number of firms producing bikes in the long run.+ [2 marks]+ c. How will the price of a bike and the number of bikes produce by ABC Bikes change in the long run? Explain.+ [2 marks]+ t d. How will the quantity of bikes produced by all firms change in the long run? Explain.+ [2 marks]+ e. Is the market for bikes efficient or inefficient in the long run? Explain.+ [4 marks]+