Author Question: Refer to Figure 8.1. The firm earns zero profit at what output? A) 0. B) 34 and 79. C) 54. ... (Read 32 times)

jenna1 · **on:** Jul 1, 2018

Refer to Figure 8.1. The firm earns zero profit at what output?

A) 0.
B) 34 and 79.
C) 54.
D) 60.
E) 67.

Question 2

Three individuals consume a public good, and their demands are expressed as:

P1 = 1.5 - 0.005Q (for Q < 300 );
P2 = 4.5 - 0.007Q (for Q < 643 );
P3 = 3.0 - 0.002Q (for Q < 1500 ),
where P represents price in dollars per unit and Q represents output in units per day. The marginal cost of providing the service is given as a constant 5.00 per unit. Determine the efficient level of output of this public good.

al · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

B

Answer to Question 2

The efficient level occurs where the total demand curve intersects MC. The total demand is the vertical sum of the individual demands. The following curve applies for output up to Q = 300 only.
Demand P = 9.0 - 0.014Q. (0 Q 300 )
The efficient output of the good is determined at the intersection of demand and MC.
9.0 - 0.014Q = 5.00
Q = 285.7 or 286 units per time period
For output rates above Q = 300, only the second and third demands apply, and for outputs above Q = 643, only the third demand applies.