Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 9.A, Problem 1P
To determine
The assumption of constant input prices.
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Each firm in a perfectly competitive industry has the following production function: q = K1/4L1/4 Each firm takes factor prices as given. Factor prices are r = 4, w = 16
Suppose firms in this industry face a recurring fixed cost FC=144, ie, firms face a fixed cost FC=144 in the long run. Rewrite long run MC(q) and AC(q) functions and then find the long run equilibrium price.
Consider the competitive market for steel. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph.
The following diagram shows the market demand for steel.
Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms.
Consider the competitive market for steel. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph.
The following diagram shows the market demand for steel.
Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 20 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 30 firms.
If there were 10 firms in this market, the short-run equilibrium price of steel would be
per ton. At that price, firms in this industry would…
Chapter 9 Solutions
Principles of Economics (12th Edition)
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- Suppose you are given the following information about a particular industry: Market demand: Q = 1600 - 150P Short run market Supply: Q = 250P The Firm total cost function consists of a Fixed Cost of 45 and a Variable Cost of q2/5. Assume that all firms are identical in a market that is perfectly competitive. Correctly write the Firm total cost function Using the demand and supply curves for this industry, find the short run equilibrium price and quantity in the industry. Using the total cost function from part (1), derive the marginal cost function for firms in the industry. Using your answers to parts (2) and (3), find the quantity produced by each firm in a short run competitive equilibrium. Find the profit or loss of each firm in the short run equilibrium. Using your answers to parts (2) and (4), find the total number of firms in a short run equilibrium. In the long run, would you expect to see firms enter or exit the industry? Explain your…arrow_forwardConsider the competitive market for titanium. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph. The following diagram shows the market demand for titanium. Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 20 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 30 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms. If there were 20 firms in this market, the short-run equilibrium price of titanium would be $_______ per pound. At that price, firms in this…arrow_forwardConsider a competitive industry with a market demand curve of P = 120 - Q, where P is market price and Q is the quantity demanded in the market. In the short run there are 4 firms in the industry, and each firm has a total cost function of TC = 144 + q^2, where q is output of the individual firm. The short-run industry supply curve Qs is?arrow_forward
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