1. Production Grid, Isoquants, Short-Run Production and Costs

The following production grid shows the relationship between capital and labor inputs and the output that can be produced by a firm.

Capital

Labor

0

1

2

3

4

5

6

7

8

0

0

1

3

6

8

10

12

13

13

1

1

10

30

60

85

105

120

130

135

2

3

30

85

105

120

150

180

210

230

3

6

60

105

130

210

280

340

380

410

4

8

85

120

210

410

500

570

620

660

5

10

105

150

280

500

700

850

950

1000

6

12

120

180

340

570

850

1100

1300

1400

7

13

130

210

380

620

950

1300

1500

1600

8

13

135

230

410

660

1000

1400

1600

1700

Based on this information use Excel Charts to do the following:

(a) Set up an isoquant map with isoquants representing output levels of 10, 105, and 410 units of output.

(b) Set up a diagram showing the firm’s short run production function assuming that the firm has only one unit of capital.

(c) Set up a diagram showing the firm’s marginal product schedule assuming that the firm has only one unit of capital.

(d) Assume that capital is fixed at one unit in the short run and that the costs associated with the use of fixed inputs are $30 per period, while the wage rate is $10 per unit of labor per period. Use this information to perform the calculations necessary to set up a diagram showing total cost (TC) and total variable cost (TVC) of the firm per period in the short run.

(e) Also, use the information in part c to then set up a another diagram showing the firm’s short run marginal cost (MC), average total cost (ATC), and average variable cost (AVC) in the range from 10 to 135 units of output.

2. Price Discriminating Monopoly Part I

Consider a monopolistic firm selling the same product in two completely separate markets with the following demand schedules:

Quantity (Q1)

0

1

2

3

4

5

6

7

8

Price (P1)

24

21

18

15

12

9

6

3

0

Quantity (Q2)

0

1

2

3

4

5

6

7

8

Price (P2)

8

7

6

5

4

3

2

1

0

The marginal cost of this firm is equal to its average total cost and is constant at $3 per unit produced (note that this also means that there are no fixed costs). Based on this information use excel to calculate marginal revenues and set up a diagram that shows the demand and the marginal revenue curves of this firm as well as the quantities and prices it should charge in each market in order to maximize overall profits from the two markets.

3. Price Discriminating Monopoly Part II

Consider a monopolistic firm selling the same product in two separate markets, A and B, which have different demand curves. The demand in market A is defined by PA = 18 – 2QA for positive prices and quantities (i.e., for all PA, QA > 0) and the demand in market B is defined by PB = 9 – QB for positive prices and quantities (i.e., for all PB, QB > 0). Assume that the marginal cost of this firm is equal to its average total cost and is constant at $4 per unit produced.

Based on this information, your task is to use excel to set up diagrams that show the demand and the marginal revenue curves of this firm, as well as the quantities and prices it charges in each market, and also calculate the firm’s total profit from selling in the two markets.