EC201-4rdPS-Spring2023(2) (1)
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School
Boston University**We aren't endorsed by this school
Course
CAS EC 201
Subject
Economics
Date
Dec 16, 2024
Pages
2
Uploaded by CommodoreMask15065
EC201-A1 - Spring-2020Prof. Regina CatiProblem set #4Competitive MarketDue: 04/11/2023Chapter 8: Competitive Markets1)(35 points) An industry in the U.S. is perfectly competitive, and each producer has a cost curve given by ࠵?(࠵?) = 72 + 5࠵? +!"࠵?#. In the short-run there are 20 identical producers. The market demand curve is ࠵?$= 475 − 5࠵?a) What is the fixed cost? Write the expressions for average total cost, average variable cost, and marginal cost. b) What would be the shutdown price for each firm in the short-run? What is the short-run market equilibrium in this industry (assuming the fixed cost in the short run is not avoidable)? c) Represent demand and short-run supply in a market level diagram. d) Compute the firm’s profit. e) Now, there is free entry and exit and all costs can be avoidable. What is the long-run equilibrium price in this industry, and at this price, how much would an individual firm produce? f) Represent demand and long-run supply in a market level diagram. g) How many active producers are in this industry in a long-run competitive market? How many producers entry in this industry? What is the total quantity produced in this industry? 2) (20 points) The raspberry growing industry in the U.S. is perfectly competitive, and each producer has a long-run marginal cost curve given by . The corresponding long-run average cost function is given by The market demand curve is . What is the long-run equilibrium price in this industry, and at this price, how much would an individual firm produce? How many active producers are in the raspberry growing industry in a long-run competitive? 3) (20 points) The oil drilling industry consists of 60 producers, all of whom have an identical short-run total cost curve, ࠵? = 256 + 2࠵?#, where q is the monthly output of a firm and $128 is
the monthly fixed cost. Assume that $128 of the firm’s monthly $256 fixed cost can be avoided if the firm produces zero output in a month. The market demand curve for oil drilling services is D(P) = 800 − 5P, where D(P) is monthly demand at price P. Find the market supply curve in this market, and determine the short-run equilibrium price. Compute each firm profit. 4) (25 points) A market contains a group of identical price taking firms. Each firm has a marginal cost curve MC = 2q, where q is the annual output of each firm. A study reveals that each firm will produce if the price exceeds $20 per unit and will shut down if the price is less than $20 per unit. The market demand curve for the industry is D(P) = 240 – P/2, where P is the market price. At the equilibrium market price, each firm produces 20 units. What is the equilibrium market price, and how many firms are in this industry?