Exam 3 ECON 303 – Microeconomics II CSUSM-Fall 2020 Total Points: 40 points Respond to ALL (two) questions and their sub-parts

Exam 3 ECON 303 – Microeconomics II CSUSM-Fall 2020 Total Points: 40 points Respond to ALL (two) questions and their sub-parts. There is partial credit for attempting a question. The points per question is provided to indicate of the level of explanation expected. Write legibly. Write complete sentences. Label axes. Label curves. Show all work for full credit. I. Monopoly (30 points) If the inverse demand function of a monopolist is p = 300 - 3Q, and its cost function is C = 10 + 10Q - 4Q2 + (2/3) Q3, a. (1 point) What is the marginal revenue function? b. (2 points) Draw the demand and marginal revenue curves. c. (2 points) Derive the profit function of the monopolist. d. (4 points) What is the profit maximizing output and price for the monopolist? Show all the work. e. (2 points) What is the maximum profit? f. (4 points) What is the competitive price and quantity of output? g. (2 points) Now a specific tax of $2 per unit of output is imposed on the firm. How will this change the profit function of the monopolist? h. (3 points) What is the profit maximizing output and price post tax? i. (2 points) What is the tax revenue generated by the government? j. (8 points) In a separate graph (do not reuse the one drawn for part b), draw the price – quantity combinations before and after the tax was imposed. In your graph include among other things the MC, AVC and ATC curves, pre and post taxes. II. Perfect Competition (10 points) a. (5 points) What is the effect of an ad valorem tax of (the share of the price that goes to the government) on a competitive firm’s profit-maximizing output? b. (5 points) If only one competitive firm receives a specific subsidy (negative tax) of s, how should that firm change its output level to maximize its profit, and how does its maximum profit change? Use a graph to illustrate your answer.