The market for a slice of pizza in Oakland is highly competitive. The market demand for a slice of pizza can be summarized by the function: D(p) = 1200 - 200p. Consider each pizza shop to be an individual firm with the 1 same cost function C(q) = FC +q², where FC represents fixed cost of renting a space from which to sell pizza, and the variable costs reflect the cost of the labor involved in producing and selling pizza. a. In the short-run (e.g. the six months following the signing of a lease for a space from which to sell pizza) determine the quantity each pizza shop would produce for any price in the market. b. In what way does your answer to part (a) depend on the fixed cost? Explain your answer in no more than two sentences. c. Suppose initially there are 100 pizza shops selling pizza in Oakland. Derive an expression for the short-run market supply for pizza. d. Find the short-run equilibrium price and quantity in the Oakland pizza market. How does this equilibrium depend on F? Note: these quantity numbers are not meant to seem realistic. e. Give an expression for an individual pizza firm's profits in the short run. Under what circumstances does each pizza shop earn positive, negative, or 0 profits. How do pizza shop profits depend on FC? Explain. f. Is there a nonzero price low enough that the firm should decide to shutdown in the short-run? In no more than three sentences, support your answer with evidence derived from your knowledge of this firm's costs.
The market for a slice of pizza in Oakland is highly competitive. The market demand for a slice of pizza can be summarized by the function: D(p) = 1200 - 200p. Consider each pizza shop to be an individual firm with the 1 same cost function C(q) = FC +q², where FC represents fixed cost of renting a space from which to sell pizza, and the variable costs reflect the cost of the labor involved in producing and selling pizza. a. In the short-run (e.g. the six months following the signing of a lease for a space from which to sell pizza) determine the quantity each pizza shop would produce for any price in the market. b. In what way does your answer to part (a) depend on the fixed cost? Explain your answer in no more than two sentences. c. Suppose initially there are 100 pizza shops selling pizza in Oakland. Derive an expression for the short-run market supply for pizza. d. Find the short-run equilibrium price and quantity in the Oakland pizza market. How does this equilibrium depend on F? Note: these quantity numbers are not meant to seem realistic. e. Give an expression for an individual pizza firm's profits in the short run. Under what circumstances does each pizza shop earn positive, negative, or 0 profits. How do pizza shop profits depend on FC? Explain. f. Is there a nonzero price low enough that the firm should decide to shutdown in the short-run? In no more than three sentences, support your answer with evidence derived from your knowledge of this firm's costs.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter18: The Markets For The Factor Of Production
Section: Chapter Questions
Problem 3PA
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Transcribed Image Text:2. The market for a slice of pizza in Oakland is highly competitive. The market demand for a slice of pizza can be
summarized by the function: D(p) = 1200 — 200p. Consider each pizza shop to be an individual firm with the
1
same cost function C(q) = FC + - q2, where FC represents fixed cost of renting a space from which to sell pizza,
and the variable costs reflect the cost of the labor involved in producing and selling pizza.
a. In the short-run (e.g. the six months following the signing of a lease for a space from which to sell pizza)
determine the quantity each pizza shop would produce for any price in the market.
b. In what way does your answer to part (a) depend on the fixed cost? Explain your answer in no more than two
sentences.
c. Suppose initially there are 100 pizza shops selling pizza in Oakland. Derive an expression for the short-run
market supply for pizza.
d. Find the short-run equilibrium price and quantity in the Oakland pizza market. How does this equilibrium
depend on F? Note: these quantity numbers are not meant to seem realistic.
e.
Give an expression for an individual pizza firm's profits in the short run. Under what circumstances does each
pizza shop earn positive, negative, or 0 profits. How do pizza shop profits depend on FC? Explain.
f.
Is there a nonzero price low enough that the firm should decide to shutdown in the short-run? In no more than
three sentences, support your answer with evidence derived from your knowledge of this firm's costs.
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Step 1: State the given information
VIEWStep 2: a) Determine the quantity each pizza shop would produce for any price in the market
VIEWStep 3: b) Discuss whether answer in part (a) depends on FC
VIEWStep 4: c) Derive an expression for the short-run market supply
VIEWStep 5: d) Find the short-run equilibrium price and quantity
VIEWStep 6: e) Compute the short run profit function for individual firm
VIEWStep 7: f) Ascertain whether there is a nonzero price low enough to shutdown in short run
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