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Managerial Economics Study Questions with Answers Competitive Markets
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7) Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly
competitive, with boxes currently selling for $100 per thousand. Coniganʹs total and marginal cost curves are:
TC = 3,000,000 + 0.001Q2
MC = 0.002Q
where Q is measured in thousand box bundles per year.
a. Calculate Coniganʹs profit maximizing quantity.
Is the firm earning a profit?
b. Analyze Coniganʹs position in terms of the shutdown condition.
Should Conigan operate or shut down in the shortrun?
7) Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market ...
7) a.
Given the competitive nature of the industry, Conigan should equate P to MC.
100 = 0.002Q
Q = 50,000
To determine profit:
π = TR - TC
TR = PQ
TR = $100 · 50,000
TR = 5,000,000
TC = 3,000,000 + 0.001(50,000)2
TC = 3,000,000 + 2,500,000
TC = 5,500,000
π = 5,000,000 - 5,500,000
π = -500
Conigan is losing 500,000 per year.
8) The utilities commission in a city is currently examining pay telephone service in the city. The commission has
been asked to evaluate a proposal by a city council member to place a $.10 price ceiling on local pay phone
service. The staff economist at the utilities commission estimates the demand and supply curves for pay
telephone service as follows:
QD = 1600 - 2400P
QS = 200 + 3200P,
where P = price of a pay telephone call, and Q = number of pay telephone calls per month.
a. Determine the equilibrium price and quantity that will prevail
without the price ceiling.
8) The utilities commission in a city is currently examining pay telephone service in the city. The...
8) a.
set QD = QS
1600 - 2400P = 200 + 3200P
1400 = 5600P
P = $0.25
substitute into QD
QD = 1600 - 2400(0.25)
QD = 1000
8) The utilities commission in a city is currently examining pay telephone service in the city. The commission has
been asked to evaluate a proposal by a city council member to place a $.10 price ceiling on local pay phone
service. The staff economist at the utilities commission estimates the demand and supply curves for pay
telephone service as follows:
QD = 1600 - 2400P
QS = 200 + 3200P,
where P = price of a pay telephone call, and Q = number of pay telephone calls per month.
a. Determine the equilibrium price and quantity that will prevail
without the price ceiling.
b. Analyze the quantity that will be available with the price ceiling
(in the long-run).
c. The city council realizes that the telephone company could curtail
pay phone service in response to the ceiling. To prevent this,
the council plans to impose a requirement that the telephone company
must maintain the current number of pay phones. In light of this
additional restriction, what will be the likely impact of the price ceiling?
8) The utilities commission in a city is currently examining pay telephone service in the city. The...
c.
The telephone company would be expected to allow service to decline by not servicing broken phones, placing the
required phones in very easily reserviced areas, and otherwise reducing the cost of complying with the requirement
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