PRINCIPLES OF MICROECONOMICS LOOSE LEAF
12th Edition
ISBN: 9780134081083
Author: CASE
Publisher: PEARSON
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Chapter 9.A, Problem 5P
To determine
The demand and supply in the long run.
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The figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the
market was supplied by perfectly competitive firms Later, the government granted the exclusive
right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve
(MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3,
irrespective of the market structure
What is the surplus enjoyed by the firm when it is the sole supplier of the medicine?
OA. 590
OB. $180
OC. $30
OD. $60
Price/Cost (5)
10
1
10
20 30 40
MR
Demand
50 60 70
80 90 Quantity
(units)
Supply Function. A review of industry-wide data for the jelly and jam manufacturing industry suggests the following industry supply function
Q = - 59,000,000 + 500,000P - 125,000PL - 500,000PK + 2,000,000W
where Q is cases supplied per year, P is the wholesale price per case ($), PL is the average price paid for unskilled labor ($), PK is the average price of capital (in per cent), and W is weather measured by the average seasonal rainfall in growing areas (in inches).
A. Determine the industry supply curve for a recent year when PL = $8, PK = 10 per cent, and W = 20 inches of rainfall. Further, show the industry supply curve with quantity expressed as a function of price, and price expressed as a function of quantity.
B. Calculate the quantity supplied by the industry at prices of $50, $60, and $70 per case.
C. Calculate the prices necessary to generate a supply of 4 million, 6 million, and 8 million cases.
Despondent over the Red Sox's terrible season, Prof. Gruber decides to quit his day job and start a bicycle manufacturing firm in Kendall Square. As he starts looking into the bicycle manufacturing industry, he realizes it has some interesting features. First, he realizes that it operates as a competitive industry. Second, he finds that there are two technologies used by firms in the industry. Technology 1 uses solar power, and has a cost function C1(q)=q+4Q2+32 for q>0. Technology 2 uses electricity from the grid and is more efficient, with a cost function C2(q)=q+2Q2+32 for q>0. Assume that we are in the long run, so firms using both technologies can shut and leave the market at 0 cost, so that C(0)=0 for both technologies.
Now, suppose that the government of Massachusetts offers solar subsidies to 10 bicycle manufacturers. These subsidies are for $80 and the manufacturers receive these subsidies as long as they construct a bicycle manufacturing plant using the newly-invented…
Chapter 9 Solutions
PRINCIPLES OF MICROECONOMICS LOOSE LEAF
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