ECN 303 Practice Problems for Ch.

8 and 10 in the textbook.

1. A firm has a patent on a drug. Its demand (price) equation is: P = 500 -0.2Q, and its long-run
total cost is: LTC = 0.6Q.

a. Determine the firm's LAC and LMC.

b. Determine the profit-maximizing price and quantity, and the firm's profits.

c. What would price and output be under perfect competition?

d. Determine the deadweight loss.

2. A market consists of two firms, A and B, that decide to form a cartel. Their long-run total costs
are: LTCA = 6QA + QA^2 and LTCB = 19QB + 0.5QB^2.

a. If they decide to limit total output to 14, what outputs should the firms produce to achieve this
level of output at minimum total cost? What is each firm’s marginal cost?

b. If market demand is P = 86-Q, determine the optimal output and price.

c. Determine the cartel's profits.