# Problem Set 3 PDF

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Problem Set 3 PDF
ECON 213

PROBLEM SET 3
Name: ___Krystal Logsdon_____________________________________
Problem Set 3 is to be completed by 11:59 p.m. (ET) on Monday of Module/Week 6.

1. Data for the market for graham crackers is shown below. Calculate the elasticity of demand between the following prices.
Price of crackers Quantity Demanded (per month)

\$3

80

\$2.5

120

\$2

160

\$1.5

200

\$1

240

\$1.00 - \$1.50: __*_-0.333__________________________
\$1.50 - \$2.00: __*__-0.6___________________________
\$2.00 - \$2.50: ___*_-1_____________________________
\$2.50 - \$3.00: __*___-1.66_________________________

If the price of graham crackers is \$2.50 should firms raise or lower their prices if they want to increase revenue? Explain this in terms of elasticity.
*The firm should lower their prices. The elasticity of demand increases.

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ECON 213

2. Assume the competitive market shown below faces a short run price of \$10. Using the graph below, identify the following:

Profit maximizing output:

*_MC=MR___Q=110________

Approximate mark up over cost ___*__There would be no mark up over cost___

In the long run, the price falls to \$7.50. Why does this happen?
*The business operates at the minimum average total cost (ATC), which at \$7.50 is equal to the marginal cost.

Price, Cost

What is the new profit maximizing output? _*_Minimum Average Total Cost
(ATC)____Q=90_________________

\$12.50

MC

\$10.00

ATC
P=MR

\$7.50

\$5.00

\$2.50

\$0.00
10 20 30 40 50 60 70 80 90 100 110 120 130

!

Quantity

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ECON 213

3. A local hardware store is trying to decide whether to stay open. They have found that their industry is extremely competitive and profits have shrunk considerably.
Knowing that you have taken an economics course the owners have asked for your opinion. Draw a completely labeled graph to help you explain the shutdown decision.
You should show two graphs in your answer, one for the market as a whole, and one for this store in particular. Assume that the

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