1. The cost function for any potential firm in a manufacturing industry is C(y) = 2 + 8y + 2y? (if a firm exits the industry, then its cost is zero). The inverse market demand function is given by P(y) = 100 – 2y. (b) If the industry allows free entry and all the firms are price takers, what is the number of firms in equilibrium?
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- Q1. Suppose perfect competition prevails in the market for hotel rooms. The current market equilibrium price of a standard room is RM300 per night. 2. Suppose a RM50 per night tax is levied on hotel occupancy. Show how this tax will prevent the market from achieving efficient output.Consider the market for bicycles in the fictional province of Westvale. The market demand function for bicycles is given by P=300-2Q. The marginal cost curve for firms in this market is given by P=40+Q. Prices are measured in dollars. a) Under a competitive market equilibrium, what is the price of a bicycle? b) How many bicycles are produced under a competitive market equilibrium? c) Calculate consumer surplus, producer surplus, and total surplus under the competitive market equilibrium Suppose that the firms that were once competing in this market merge into one single firm, forming a monopoly. This monopoly has a marginal revenue function of P=300-4Q. d) What price does this monopolist charge? e) How many bicycles does the monopolist produce? f) Calculate consumer surplus, producer surplus, and total surplus under the monopolistic market outcome g) How much deadweight loss resulted from the creation of the monopolist?Question 2 Suppose that the cost function of a firm is C(q)=4q. Suppose that this is the only firm in the market, and demand is Q(p)=10-p. What is the Producer Surplus in a competitive equilibrium in this economy? 2 1 6 0 12
- In a purely competitive market at its long-run equilibrium, which of the following is not true? a The marginal benefit of the last unit of the product equals the marginal cost of producing that unit. b The maximum willingness of buyers to pay for the last unit of the product equals the minimum acceptable price for the seller of that unit. c Price equals marginal cost, and they are equal to the lowest attainable average cost of production. d The combined amount of consumer and producer surpluses is at its minimum possible.Suppose that each firm in a competitive industry has the following identical costs:Total cost: TC = 25+0.25Q2,where Q is an individual firm’s quantity produced.The market demand curve for this product is as follow:Demand: P=60-0.095Q,where P is the price and Q is the total quantity of the good. Currently. (i) Identify each firm’s fixed cost, variable cost, and its marginal cost.(ii) Suppose that there are 10 firms in the market. Construct the market supply function in the short run. Determine the equilibrium price and quantity. (Hint: If each firm’s supply function is Qi= a+bP then the market supply Qm can be the aggregated supply at each price as Qm = Q1+Q2+Q3+...+Qi where Qi is each firm’s supply function.)Consider a market where the inverse demand function is P = 400 – 20Q, where Q is the aggregate output. Assume there are three firms which compete à la Bertrand. a)What is the equilibrium price and the corresponding aggregate output if all firms have a constant marginal cost equal to 40? b)What is the equilibrium price and the corresponding aggregate output if one firm has a constant marginal cost equal to 40 and the other firms have a constant marginal cost equal to 100? c)What is the equilibrium price and the corresponding aggregate output if one firm has a constant marginal cost equal to 40 and the other firms have a constant marginal cost equal to 260?
- RM2 Suppose that there are 116 identical firms in the market, each with a cost function C(q) = 100 + 1,4q2, and that market demand is D(q) = 370 - 11p. What is the equilibrium price? answer is : 7,06 can you show me how to get this?Suppose that the firm operates in a perfectly competitive market. The market price of his product is $4. The firm estimates its cost of production with the following cost function: TC=50+20q-5q2+0.33q3 a. What level of output should the firm produce to maximize its profit? b. Determine the level of profit at equilibrium. c. What minimum price is required by the firm to stay in the market?5. Suppose that market demand is described by P = 100 – (Q+q), where P is the market price, Q is the output of the incumbent firm and q is the output of a potential entrant to the market. The incumbent firm’s total cost function is TC(Q) = 40Q, whereas the cost function of the entrant is C(q) = 100 + 40q, where 100 is a sunk cost incurred to enter the market. If the entrant observes the incumbent producing Q units of output and expects this output level to be maintained, write down the equation for the residual demand curve that the entrant firm faces. If the entrant firm maximize profit given the residual demand curve in a) what output qe will the entrant produce? [Write qe as a function of Q] How much output would the incumbent firm have to produce to just keep the entrant out of the market? [That is, solve for the limit output QL.] At what price will the incumbent sell the limit output?
- Supposed that solar panels are produced in a perfectly competitive industry, which of the following statement on solar panels is correct? a. Consumers do not consider all panels to be identical b. There is no barrier to entry for new firms wanting to produce the identical quantity of solar panels c. Assuming there are no sources of market failure, the equilibrium point maximises the sum of consumer plus producer surplus. d. The equilibrium maximises producer’s surplus.There are two identical firms in an industry, 1 and 2, each with cost function , i = 1,2. The industry demand curve is P = 100 − 5X where industry output, X, is the sum of the two firms’ outputs (X1 + X2). (a) If each firm makes its output decisions on the assumption that the other will not react to its choices (the Cournot assumption), what is the equilibrium output for each firm? What is the equilibrium price? (b) Suppose that each firm takes it in turn to choose its level of output, on the assumption that the other’s output level is fixed. Would the process of adjustment be stable? (c) Suppose that firm 1 introduces a cost-saving innovation, so that its cost curve becomes C1 = 8X1. Firm 2’s cost curve and the industry demand curve are unchanged. What happens to the equilibrium quantity produced by each firm and to market price?Suppose there are 1,000 hot pretzel stands operating in New York City. Each stand has the usual U-shaped average-total-cost curve. The market demand curve for pretzels slopes downward and the market for pretzels is in long-run competitive equilibrium. Draw the current equilibrium, using graphs for the entire market and for an individual pretzel stand. Now the city decides to restrict the number of pretzel-stand licenses, reducing the number of stands to only 800. What effect will this action have on the market and on an individual stand that is still operating? Use graphs to illustrate your answer. Suppose that the city decides to charge a license fee for the 800 licenses. How will this affect the number of pretzels sold by an individual stand, and the stand’s profit? The city wants to raise as much revenue as possible and also wants to ensure that 800 pretzel stands remain in the city. By how much should the city increase the license fee? Show the answer on your graph.