Question

Q13. The supply and demand in the market for canned beets are given by the following functions:

      Q_D = 25,500 – 500P
      Q_S = 500 + 500P

The equilibrium price and quantity in this market are

a)	Q* = 750 ; P* = $0.50

b)	Q* = 25,250 ; P* = $0.50

c)	Q* = 25,000; P* = $1

d)	Q* = 13,500; P* = $26

e)	Q* = 13,000 ; P* = $25

The market supply and demand for jerky are given by the following equations:

P = 5 – 0.001Q_D
  P = 1 + 0.004Q_S

There are no barriers to entry in this industry and, at the optimal scale of 4 units, each firm’s average cost of production is $4.20 per pound. How many firms will operate in this industry in the long-run?

Question 15 options:

a)	1 since it is a natural monopoly

b)	exactly 200

c)	exactly 25

d)	an infinite number

e)	it is not possible to tell from the information provided.

Question 16 (1 point)

When there is a surplus in a market, the natural tendency is for _________ to compete the price ___________.

Question 16 options:

a)

firms; up

b)	firms; down

c)	consumers; up

d)	consumers; down

e)	black markets; down

Question 17 (1 point)

Deadweight loss represents

Question 17 options:

a)	the loss in total surplus when we don’t produce the perfectly competitive output level.

b)	the loss in consumer surplus that results from a price ceiling.

c)	the loss in producer surplus that results from a price ceiling.

d)	the loss in consumer surplus that results from a price floor.

e)	the loss in producer surplus that results from a price floor.

Answer 1

13. e) Q* = 13,000 ; P* = $25
(At equilibrium, Qd = Qs
So, 25,500 – 500P = 500 + 500P
So, 500P + 500P = 1000P = 25,500 - 500 = 25,000
So, P = 25,000/1000 = 25
Q = 500 + 500P = 500 + 500(25) = 500 + 12,500 = 13,000)

14. b) exactly 200
(In long run, P = minimum of AC = 4.2 = 5 - 0.001Q
So, 0.001Q = 5 - 4.2 = 0.8
So, Q = 0.8/0.001 = 800
Firms = 800/4 = 200)

16. b) firms; down
(Firms will compete which will drive down the prices.)

17. a) the loss in total surplus when we don’t produce the perfectly competitive output level.
(DWL is the loss in total surplus.)