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- Short-run supply and long-run equilibrium Consiber the competitive market for rhodium. Assume that no matter how many firms operate in the induatry, every firm is identical and faces the same marpinal cost (MC), averapt total cost (ATC), and average variable cost (AVC ) curves plotted in the following praph. The following graph plots the market demand curve for thodium. If there were 10 firms in this market, the short-run equilibrium price of rhodium would be per pound. At that price, firms in this industry would. Therefore, in the long run, firms would the rhodium market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be per pound. From the graph, you can see that this means there will be firms operating in the rhodium industry in long-run equilibrium. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit. True False4.5 Show that the long-run equilibrium number of firms is indeterminate when all firms in the industryshare the same constant returns-to-scale technology and face the same factor prices.4.7 Technology for producing q gives rise to the cost function c(q) = aq + bg. The market demand forqisp =a - Bq.(a) If a>0, if b < 0, and if there are J firms in the industry, what is the short-run equilibriummarket price and the output of a representative firm?b) Ifa> 0 and b <0, what is the long-run equilibrium market price and number of firms? Explain.() Ifa>0and b > 0, what is the long-un equilibrium market price and number of firms? Explain.For Parts (A) through (C) below, refer to the figure and table below. The figure below displays the short-run MC, AVC, and AC for a firm. The table displays the MC, AVC, and AC at specific levels of output for the same firm. q 0 4 6 MC(q) AVC(q) 10 10 6 6 14 8 AC(q) ∞ 15 14 MC(q) B) If the price of the good is $15 (p = 15), select the statement below that is true: A. The firm's profit in the short-run will be negative ( 0) in the short-run, what is the lowest the price (p) could be? D. The firm's profit in the short-run will be positive (π > 0). E. There is not enough information to know whether the profit will be greater than, less than, or equal to zero. AVC(q) > 8 60.00 9
- Consider a competitive industry with a large number of firms, all ofwhich have identical cost functions c(y) = y2 + 1 for y > 0 and c(0) = 0. Supposethat initially the demand curve for this industry is given by D(p) = 52 − p.(a) What is the supply curve of an individual firm?(b) If there are n number of firms, what is the industry supply curve?(c) What is the smallest price at which the product can be sold?(d) Based on your answers to parts (a)-(c), explain in detail theequilibrium points based on the market activity with respect to the price, firmand industry.Suppose that the market demand for a product is given by ( A > 0 and B > 0). Suppose QABP=-also that in a competitive industry the typical firm’s cost function is given by (k > 2()Cqkaqbq=++0, a > 0 and b > 0).(a) Calculate the long-run equilibrium market price and the output for the typical firm. (b) Calculate the equilibrium number of firms in the market.(c) Describe how changes in the demand parameters A and B affect the equilibrium number of firms in this market. Explain your results intuitively.Suppose the short-run demand for a product is give byQD= 200−2P. Supposethe short-run supply curve isQD= 3P−50. (a) What is the market clearing, or competitive equilibrium price and quan-tity. (b) If the existing firms’ average total cost is 40, and the industry is a perfectlycompetitive, constant returns to scale industry, in the long run willpricerise or all? Explain.
- The diagram illustrates the demand curve, isoprofit curves and the marginal cost curve of MQ2020, a luxury car manufactured by MQ Motors. Assume that MQ Motors currently chooses to operate at Point E. Which statement correctly describes the market of MQ2020? 10,000 Price, marginal cost ($) A P = $5,440 Po B 0 0 E 10 20 Q" = 32 D Qo Quantity of cars, Q Select one: a. Producer surplus is $63,360 as it equals MQ Motors' profits. Marginal cost Isoprofit curve: $150,000 Isoprofit curve: $63,360 Demand curve 120 O b. The amount of consumer surplus is the area ADP o. c. The amount of total surplus is the area ABD. Od. All possible gains from trade are being achieved as MQ Motors operates at its profit-maximising output and price. O e. The amount of MQ Motors' producer surplus is the area BCEP*.Consider the market for solar power. Assume the market is perfectly competitive and initially in long-run equilibrium; solar power sells for $.25 per kwh (kilowatt hour, a unit of power). Draw2graphs, oneto represent the market (supply and demand), and one to represent asingle firm (demand, marginal cost, and average cost curves). Assume a u-shaped average cost Show the equilibrium price and the quantity produced by the market (Q) and by each individual firm (q).Suppose that each firm in a competitive industry has thefollowing costs: Total cost: TC=50 + 1/2q^2 Marginal cost: MC=q where q is an individual firm’s quantity produced. The marketdemand curve for this product is Demand: QD = 120 – P where P is the price and Q is the total quantity of the good.Currently, there are 9 firms in the market. a. What is each firm’s fixed cost? What is its variable cost?Give the equation for average total cost. b. Graph average total cost curve and the marginal cost curvefor q from 5 to 15. At what quantity is average total cost curve atits minimum? What us marginal cost and average total cost at thisquantity? c. Give the equation each firm’s supply curve. d. Give the equation for the market supply curve for the shortrun in which the number of firms is fixed. e. What is the equilibrium price and quantity for this market inthe short run? f. In this equilibrium, how much does each firm produce?Calculate each firm’s profit or loss. Is there incentive for…
- Suppose that each firm in a competitive industry has the following costs: Totalcost:TC=50+1/2q2 Marginalcost:MC=q where q is an individual firm's quantity produced. The market demand curve for this product is Demand:QD=120−P where P is the price and Q is the total quantity of the good. Currently, there are 9 firms in the market.a. What is each firm's fixed cost? What is its variable cost? Give the equation for average total cost.b. Graph average-total-cost curve and the marginal-cost curve for qfrom 5 to 15. Atwhat quantity is average-total-cost curve at its minimum? What is marginal cost and averagetotal cost at that quantity?c. Give the equation for each firm's supply curve.d. Give the equation for the market supply curve for the short run in which the number of firms is fixed.e. What is the equilibrium price and quantity for this market in the short run?f. In this equilibrium, how much does each firm produce? Calculate each firm's profit or loss. Is there incentive for firms to…1. There is an industry consisting of 12 firms, each with total cost function given by TC(q) 3q² - 2q +867, where the fixed costs are non-sunk. The demand for the industry's product is given by Q¹ (p) = 448 - p per month. Firms are price takers. (a) Find the short-term equilibrium price, demand, the quantity produced by each firm, as well as firm's profit. What is the consumer surplus? What about the producer's surplus? (b) The government urgently needs to collect some extra tax revenues in the next four months to meet debt payments. This implies that it needs to collect the amount of T = 1000 per month from the industry. Calculate the tax level needed to raise this revenue depending on the type of tax. Which tax type is the better from a welfare perspective? i. An output tax of t per unit sold imposed on the firms. ii. 7-percent tax on firms' profits.5. The market demand for leather handbags is given by the function P = 75 - 1.5Q. P is priceper handbag, and Q is output per time period.The market supply is given as P = 25 + 0.50Q. A typical competitive firm that markets thistype of bag has a marginal cost of production of MC = 2.5 + 10q. [4]a) Calculate the market equilibrium price for the bags as well as the output rate in themarket.b) Calculate how much the typical firm will produce per time period at the equilibriumprice.c) If all firms had the same cost structure, how many firms would compete at theequilibrium price computed in (a) above?