Question

Beta is a small firm acting in a perfectly competitive market. Its cost function is c(q) = 60 + 16q + q²

1. Compute the supply function of this firm. That is, find the quantity produced as a function of the market price p.
2. Assume that the current market price is $66 and the government imposes a specific tax of $2 on Beta. How much would the firm produce in this case?

Suppose that the demand curve for wheat is D(p) = 120 − 10p and the supply curve is S(p) = 2p.

3. Compute the consumer and producer surplus at the equilibrium. Indicate them on a clearly marked graph.
4. Assume that the government imposes a specific tax of $2.4 on wheat, to be paid by the consumers. Compute the government revenue and the deadweight loss generated by this tax.

The coconut oil demand function is D(p, p­_p, Y ) = 1200 − 9.5p + 16.2p_p + 0.2Y, where p is the price of coconut oil in cents per pound, p_p is the price of palm oil in cents per pound, and Y is the income of consumers. Assume that p = 50, p_p = 23, and the quantity of coconut oil demanded is 1375.

5. Calculate the price elasticity of demand for coconut oil and the cross-price elasticity of demand (with respect to the price of palm oil).

Answer 1