Question

Consider a publicly available technology of producing a good that is characterized by the variable cost...

Consider a publicly available technology of producing a good that is characterized by the variable

cost function V C (Q) = 1 Q2 and fixed costs F C = 2 for a firm that operates the technology. In 2

the short run, fixed costs are unavoidable. In the long run, fixed costs are avoidable and it is free for any firm outside of the market to enter, should it want to. In the short run, the set of firms in the market is fixed. The market demand curve is given by demand function, QD (P ) = 40 − 20P

1.)In short run market equilibrium, what is the equilibrium price and quantity? What is the profit level of each producer?

2.)Suppose market demand increases to QD (P ) = 120 − 20P . Determine the new short run competitive equilibrium (state the new equilibrium price, the aggregate quantity supplied and demanded, how much each producer is producing, and the profit level of each producer).

3.)In the long run, there is free entry, and so the number of firms will adjust so that in the competitive equilibrium, firm profits are zero. Subject to the new demand function, what is the long run competitive equilibrium price level? How many firms are there in the market. How much is each firm producing?

4.)In the long run equilibrium, calculate aggregate surplus. In addition calculate producer surplus and consumer surplus.

5.)Suppose as social planners, we dictate that all existing firms in the long run equilibrium must each produce one additional unit of the good relative to what they were already producing, which is then consumed by the consumers. We hold the number of firms in the market fixed. What happens to aggregate surplus?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider a publicly available technology of producing a good that is characterized by the variable cost...
Consider a publicly available technology of producing a good that is characterized by the variable cost function VC(Q) = 1/2(Q^2) and fixed costs FC = 2 for a firm that operates the technology. In the short run, fixed costs are unavoidable. In the long run, fixed costs are avoidable and it is free for any firm outside of the market to enter, should it want to. In the short run, the set of firms in the market is fixed. The...
Consider a publicly available technology of producing a good that is characterized by the variable cost...
Consider a publicly available technology of producing a good that is characterized by the variable cost function VC (Q) = (1/2)Q2 and fixed costs FC = 2 for a firm that operates the technology. In the short run, fixed costs are unavoidable. In the long run, fixed costs are avoidable and it is free for any firm outside of the market to enter, should it want to. In the short run, the set of firms in the market is fixed....
Consider a perfectly competitive market with demand Q=1,000-4P. The marginal cost for each firm in the...
Consider a perfectly competitive market with demand Q=1,000-4P. The marginal cost for each firm in the market is constant at MC=4. Determine the competitive equilibrium price and quantity. . Graph demand, supply, and the equilibrium found in part A). Determine consumer surplus, producer surplus, and total surplus. Is consumer surplus or producer surplus equal to zero? Why or why not? Is this question representative of a long or short-run perfectly competitive market? How do you know?
1). The market demand function for a good is given by Q = D(p) = 800...
1). The market demand function for a good is given by Q = D(p) = 800 − 50p. For each firm that produces the good the total cost function is TC(Q) = 4Q+( Q2/2) . Recall that this means that the marginal cost is MC(Q) = 4 + Q. Assume that firms are price takers. (a) What is the efficient scale of production and the minimum of average cost for each firm? Hint: Graph the average cost curve first. (b)...
Suppose the daily demand function for pizza in Berkeley is           Qd=1,525−5P.Qd=1,525−5P. The variable cost of...
Suppose the daily demand function for pizza in Berkeley is           Qd=1,525−5P.Qd=1,525−5P. The variable cost of making Q pizzas per day is           C(Q)=3Q+0.01Q2.C(Q)=3Q+0.01Q2. There is a $100 fixed cost (which is avoidable in the long run), and the marginal cost is           MC=3+0.02Q.MC=3+0.02Q. Instructions: Enter your answers about price to two decimal places. Enter your answers about quantities to the nearest whole number. a. If there is free entry in the long run, what is the long-run market equilibrium...
Suppose the daily demand function for pizza in Berkeley is           Qd=1,525−5P.Qd=1,525−5P. The variable cost of...
Suppose the daily demand function for pizza in Berkeley is           Qd=1,525−5P.Qd=1,525−5P. The variable cost of making Q pizzas per day is           C(Q)=3Q+0.01Q2.C(Q)=3Q+0.01Q2. There is a $100 fixed cost (which is avoidable in the long run), and the marginal cost is           MC=3+0.02Q.MC=3+0.02Q. Instructions: Enter your answers about price to two decimal places. Enter your answers about quantities to the nearest whole number. a. If there is free entry in the long run, what is the long-run market equilibrium...
Suppose that the market for some good is competitive and the demand curve can be written...
Suppose that the market for some good is competitive and the demand curve can be written as Qd= 200 - 4P and the supply curve can be written as Qs= 20 + 2P What is the equilibrium price and quantity in the market? Suppose that every firm in the market has total costs which can be expressed as TC= 8+10Q+5Q^2.  What is the marginal cost function of each firm? How much will each firm produce? How many firms are currently in...
Hot air balloons are made in Nairobi by a number of perfectly competitive identically – sized...
Hot air balloons are made in Nairobi by a number of perfectly competitive identically – sized firms, each with the following total cost function, TC = 4q2 + 100q + 100. Market demand for hot air balloons is given by QD = 1000 – P, where QD represents total quantity demanded and P is the price per balloon. What is the long run equilibrium price in this industry? What is the equilibrium number of firms? If this is a constant...
2. Suppose a representative firm producing in a perfectly competitive industry has the following cost function:...
2. Suppose a representative firm producing in a perfectly competitive industry has the following cost function: C(q) = q2 + 8q + 36 a. Solve for the firm’s average cost function. b. At what level of q is average cost minimized (i.e. what is the minimum efficient scale for the firm)? What is the value of average cost at this level of q? c. Suppose all firms in this industry are identical and the demand function for this industry is...
Suppose that the technology to produce surfboards is according to the cost function C(q) = 4...
Suppose that the technology to produce surfboards is according to the cost function C(q) = 4 + 5q + .25q2 where 4 is the sunk fixed cost firms have to incur to enter into this market. Market demand for surfboards is given by: Q = 1550 - 10P. Surfboard producers are price takers, in other words they take the market price as given. a) Find a surfboard producer’s short-run supply curve. (Hint: start with profit maximization of a single firm)....