Question

Suppose a perfectly competitive market is originally in equilibrium. Due to a negative demand shock, the

market price falls below the ATC curve of Firm A, one of the many firms selling in the market. What will

Firm A do in the short-run? What about the long run? Illustrate your answers graphically

Answer #1

Consider a perfectly competitive market where the market demand
curve is p(q) = 1000-q. Suppose
there are 100 firms in the market each with a cost function c(q)
= q2 + 1.
(a) Determine the short-run equilibrium.
(b) Is each firm making a positive profit?
(c) Explain what will happen in the transition into the long-run
equilibrium.
(d) Determine the long-run equilibrium.

In a perfectly competitive market, market demand is QD = 380 –
2P and market supply is QS = 2P - 20. Each
firm has short-run MC = 5Q and ATC = 2.5Q + (100/Q) (ATC is at
minimum when Q = 6.32).
4. How much output will each firm produce?
a.
180
b.
10
c.
20
d.
100
5. What is the profit/loss for each firm in the short-run?
a.
$-7, 000
b.
$900
c.
$2, 500
d.
$0...

Suppose a representative firm in a perfectly competitive
industry has the following total cost of
production in the short run: TC = Q3 - 60Q2 +
3000Q.
a) What will be the long run equilibrium quantity for the firm?
What will be the long run
equilibrium price in this industry?
b) If the industry demand is given by QD = 12400 -
4P. how many firms will be active in the long-
run equilibrium?
c) Suppose the firm faces a...

Consider a perfectly competitive market where the market demand
curve is p(q) = 1000 − q. Suppose there are 100 firms in the market
each with a cost function c(q) = q2 + 1.
(a) Determine the short-run equilibrium. (b) Is each firm making
a positive profit?
(c) Explain what will happen in the transition into the long-run
equilibrium.
(d) Determine the long-run equilibrium.

Illustrate the model of a perfectly competitive firm that is in
long-run equilibrium. Your graph should have the demand curve
facing the firm, price, MR, MC, and ATC. Identify the optimal level
of output. What is the firm’s profit in the long-run?

Suppose that the market for laptops is perfectly
competitive. The long-run equilibrium price is $3000 for a laptop.
Suppose that the laptop market is initially in long-run
equilibrium. Assume that all businesses that make laptops are
identical.
On a diagram, illustrate the market demand for laptops,
the short-run and long-run market supply of laptops. (1
mark)
The government decides to impose $500 tax for each
laptop sold by the firm.
Using an appropriate diagram, explain how the
introduction of the...

Suppose we have a perfectly competitive market where at the
equilibrium price the total market demand is 300 units. Each
individual firm in the market has a cost function C(Q) = 50 -2Q +
0.9Q^2. The number of firms this market can support in the long run
is _____?

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...

In a perfectly competitive industry, the current short-run
equilibrium has P>ATC. In the long run equilibrium, there will
be:
More firms in the market
Less firms in the market
The number of firms would not change
Any of above
None of above

Assume that a perfectly competitive, constant cost industry is
in a long run equilibrium with 60 firms. Each firm is producing 90
units of output which it sells at the price of $41 per unit; out of
this amount each firm is paying $3 tax per unit of the output. The
government decides to decrease the tax, so the firms will be paying
$1 tax per unit.
a) Explain what would happen in the short run to the equilibrium
price...

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