Question

Please do problems starting from 5 thank you!

Zoras’ is a commercial fishery whose costs are estimated as Cost = 900 + 5 ∙ Output + Output2 where output is the number of pounds of fish caught and sold. If we denote output by Q, the average and marginal costs are given by the formulas:

AC = 900/Q + 5 + Q MC = 5 + 2 ∙ Q

1. (10 points) In a single graph, draw the average and marginal cost curves.

2. (10 points) Compute Zoras’ efficient scale, their break-even price, and their shut-down price.

3. (10 points) Compute the formula for Zora’s supply. Next, imagine that the fish market consists of 99 other firms that are identical to Zoras.’ Thus, the supply side is made up of 100 clones of Zoras’.

4. (10 points) Find the formula for the market supply. Now, assume that the demand in the fish market is given by:

Demand: Quantity = 9, 250 − 50 ∙ Price

5. (10 points) Find the equilibrium price and quantity, and represent the demand, supply, and equilibrium in a graph (with quantity in the horizontal axis and price in the vertical axis).

6. (10 points) How much money is each firm making in profit?

7. (10 points) If there is free entry to the fish market, how many firms will there be in equilibrium in the long run?

8. (10 points) Imagine that the government sets a price floor of $125. Compute the producer surplus from the equilibrium in part 5 and the new producer surplus after given the price floor. Are producers better off or worse off due to the price floor?

9. (10 points) Imagine that the government changes the price floor to $160. Compute and compare the new producer surplus with that from the equilibrium in part 5. Are producers better off or worse off due to the price floor?

10. (10 points) For both of problems 8 and 9, compute the change in producers’ individual profit due to the price floors

Answer 1