1 Suppose Dell finds the relationship between the average to

1. Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by the figure to the right. Dell will maximize profits if it produces ________ notebook computers per month.

A.100,000

B.200,000

C.300,000

D.Not enough information is given to determine the profitminus?maximizing quantity.

2. If the television market for 4K and OLED sets is perfectly competitive, and a producer invents a part used in the televisison set that allows for a lower its cost of production, what will happen in the short run and in the long run?

A .Initially, the firm will be able to increase its profit significantly but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate.

B.This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation.

C.The firm will probably incur losses temporarily because of the high cost of the innovation but in the long run it will start earning positive profits.

D.The firm will be able to increase its profits temporarily but in the long run, profits will be eliminated as other firms copy the innovation.

Price and cost [dollars per notebook computer) 100,000 200,000 Quantity [notebook computers per month)

Solution

1) D is correct

Not enough information is given. To determine profit maximising level we need information about marginal cost and marginal revenue.

2) D is correct

In the short run profits will increase due to lower cost of production but in the long run Profits will be 0 as other firms will copy the innovation.