FIN 321 Grossmont College Managerial Economics Online Final Make Up

I. Problems (Please show all work and remember to label all graphs!)
1) Competition: Pure, Monopolistic, Monopoly
You are the manager of GetMoney Inc. and you produce cardboard boxes. Suppose that you
hired a consultant for your company to estimate the demand for your cardboard boxes. Your
consultant determines that you are operating your business in a monopolistically competitive
environment. You collect data on the price and quantity of boxes sold and send it to your
consultant, who then estimates the inverse demand equation as P = 7 – (1.5)*Q. Please also
assume that you have a fixed cost of $1 and that the variable cost as estimated by your consultant
is V(Q) = 3Q + (0.5) ∗
2
.
a) What is the quantity that maximizes profits based upon the above information? What are the
corresponding maximum profits that you can earn? (Please use graphs to support your
answer.)
b) Considering your answer to part a, would you conclude that the profits that you earned were
made over the short-run or long-run? What happens in the long-run to your profits in this type
of market structure? (Please use graphs to support your answer).
c) Considering your answer to part b, what would you expect to happen to your profits if you
operated your business in a monopoly? Why or why not?
2) Production processes and cost theory
You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm
produces and sells a given output. If w = $5, r = $11, MPL = 40, and MPK = 60.
2
a. Please indicate whether your firm is employing the optimal mix of labor and capital. (Please use
graphs to support your answer.)
b. Considering your answer in part a, if you concluded that your firm is not using the optimal mix of
labor and capital, what must your firm do in order to employ the proper mix of labor and capital?
(Please use graphs to support your answer.)
II. Essays
3) Production theory and cost processes
For this question, please find an article from a mainstream news source pertaining to the same
firm you selected for your term project that discusses economies of scale and scope in the
market for the product. Please also discuss whether you think that the graphs and noted shocks
are consistent with the zoom lecture on this topic. (please use graphs to support your answer).
4) Oligopoly and Game theory, pricing topics OR competition: Pure, Monopolistic, Monopoly
For this question, please consider the following four market structures that we covered in the
zoom lectures: Pure competition, Monopolistic competition, monopoly, and oligopoly. Please
select one product market that the firm you selected for your term project operates in. Of the
above four market structures, which one does your firm operate within regarding its operation
in this market? (Please find an article from a mainstream news source that support your