S2W4

Alexander Graham Bell is trying to estimate costs for his telephone firm. Given that his marginal
cost curve is given by M C = 15000 + 150x + 0.5x^2, which of the following is his Total Cost Curve

• 150+x

• 0.5x^3+150x^2+15000x+C

• 1.5x^3+150x^2+15000x+C

• (1/6)x^3+150x^2+15000x+C

Adam Smith is working with a firm which produces according to the Total Cost function: T C =
9Q^2 + 2000. What is the firm’s supply curve?

• p=q/18

• q=p/18

• q=18p

Smith now seeks to minimise average cost with the same total cost function: T C = 9Q^2 + 2000.
At what output is average cost minimised (rounded to the nearest whole number)?

James Clark Maxwell is trying to optimise efficiency in his workplace. He decides the best way
to do this is to optimise total surplus (where producer and consumer surplus together are maximised). What kind of efficiency is this?

• Allocative

• Productive

• Dynamic

• Social

• Yes

• No

Arthur Conan Doyle is writing a new Sherlock book about firms and markets. Can you help him remember the three conditions for long run competitive equilibrium?

Answer explanation

1) MR = MC

2) Economic profit = 0

3) Quantity demanded = quantity supplied

Answer explanation

P = €9, Q = 1000

Mary Brück wants to set up a shop selling niche astronomy equipment. Would the market for niche astronomy equipment be perfectly competitive near the city center of large cities, where all of the science equipment stores are located? Why? Why not? How would you describe the market for astronomy equipment in a small village in the Caribbean? What does this imply for the prices that the citizens of the large cities will face when compared to the citizens of the Caribbean town?

Answer explanation

The niche astronomy equipment market in the dense city centers would be nearly perfect, and so we expect the price to be quite close to the cost. In the small village, there may only be one seller of the equipment. This does not necessarily mean that prices will be higher in the small town, because one of the main inputs to the science equipment store is rent, and this is clearly going to be a lot more expensive in big cities, and that cost will get passed onto consumers even in the most competitive market.

Assume that unversity of Edinburgh Alumni has an elasticity of demand of |ε| = 10, 000 in the
short run, and |ε| = 0.02 in the long run, in each of the two cases, which market participant
(consumers or producers) pay the larger burden of the tax in the short run and long run?

Adam Smith needs help determining which of the following facts about the perfectly competitive pub industry are true.

• In the short run, firms will operate if price is less than min AVC

• In the long run, firms will exit the industry if economic profits are being made

• Only economic profits can be made in the long run

• Only normal profits can be made in the long run