# MICROECONOMICS and MACROECONOMICS

MICROECONOMICS and MACROECONOMICS
Assume that a firm in a perfectly competitive market can sell its product for \$35
[i.e. price per unit of output). Furthermore, it faces the following costs:

a) Calculate Total revenue (TR), Marginal Cost (MC), Fixed Cost [FC),
Variable cost [VC) and Average Cost (AC).
b) What is the profit maximizing output level? Explain.
c) Is this firm is making a profit or loss at profit maximizing output level?
Explain.
d) Do you think the firm will continue its production in the short run?
Explain.
e) What will be the long-run price in this market? Explain.
Assume the current price of corn chips is \$2 per packet. The demand elasticity is 0.5
(ignoring the negative sign) and current consumption (i.e. quantity demanded) is 40
million packets per week. Suppose that the manufacturer raises the price of corn chips
to \$4 per packet.
a) Derive the demand equation.
b) What will happen to weekly consumption as price increases to \$4?
c) Suppose the supply equation is P=2+Q. Find the market equilibrium price and
equilibrium quantity.
d) Given the above supply and demand equations, calculate the surpluses for
both consumer and producer.
e) Let assume that Government has imposed a fixed tax \$4 per unit on a seller
then what will be the equation of new supply curve? Given the demand curve,
do you think this market exists after Government has imposed a fixed tax?