1. A competitive industry is composed of 24 identical firms. Each firm has the following marginal cost of production in the short-run: MC = 58 +8Q. Each firm has the following Total Cost of production in the short-run: TC = 2 + 58Q + 4Q². Demand for the product is given by the following demand curve: Qd = 1,211 - 2P. a. Explain why each firm will produce where market equilibrium price (Pº) equals the firm's marginal cost of production (MC). b. Derive an equation for the industry supply curve (i.e., Q₁ = .....).

1. A competitive industry is composed of 24 identical firms. Each firm has the following marginal cost of production in the short-run: MC = 58 +8Q. Each firm has the following Total Cost of production in the short-run: TC = 2 + 58Q + 4Q². Demand for the product is given by the following demand curve: Qd = 1,211 - 2P. a. Explain why each firm will produce where market equilibrium price (Pº) equals the firm's marginal cost of production (MC). b. Derive an equation for the industry supply curve (i.e., Q₁ = .....).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Short-run supply and long-run equilibrium Consiber the competitive market for rhodium. Assume that no matter how many firms operate in the induatry, every firm is identical and faces the same marpinal cost (MC), averapt total cost (ATC), and average variable cost (AVC ) curves plotted in the following praph. The following graph plots the market demand curve for thodium. If there were 10 firms in this market, the short-run equilibrium price of rhodium would be per pound. At that price, firms in this industry would. Therefore, in the long run, firms would the rhodium market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be per pound. From the graph, you can see that this means there will be firms operating in the rhodium industry in long-run equilibrium. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit. True False
3. Technology for producing q gives rise to the cost function c(q) = aq+ bq². The market demand for q is p = a - Bq. (a) If a > 0, if b 0 and b 0 and b >0, what is the long run equilibrium market price and number of firms? Explain.
2. In the competitive mink oil industry, each fim has the same cost function: C = 10,000 100 + 0.01q. Demand for mink oil is as follows: Q = p2 What will be the long-run equilibrium price and quantity in the market? How many fims are in the industıy?
5. The market demand for leather handbags is given by the function P = 75 - 1.5Q. P is priceper handbag, and Q is output per time period.The market supply is given as P = 25 + 0.50Q. A typical competitive firm that markets thistype of bag has a marginal cost of production of MC = 2.5 + 10q. [4]a) Calculate the market equilibrium price for the bags as well as the output rate in themarket.b) Calculate how much the typical firm will produce per time period at the equilibriumprice.c) If all firms had the same cost structure, how many firms would compete at theequilibrium price computed in (a) above?
4.5 Show that the long-run equilibrium number of firms is indeterminate when all firms in the industryshare the same constant returns-to-scale technology and face the same factor prices.4.7 Technology for producing q gives rise to the cost function c(q) = aq + bg. The market demand forqisp =a - Bq.(a) If a>0, if b < 0, and if there are J firms in the industry, what is the short-run equilibriummarket price and the output of a representative firm?b) Ifa> 0 and b <0, what is the long-run equilibrium market price and number of firms? Explain.() Ifa>0and b > 0, what is the long-un equilibrium market price and number of firms? Explain.
The figure below shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right). Assume that all firms in this market, including the potential entrants, have identical cost curves. Initially, the market is in equilibrium at point A. Price Cost MC ATC A 4 2 1 D 2 4 6 8 10 12 Quantity Quantity Refer to the figure above. Suppose that the market has reached the long-run equilibrium. Then, due to news of the product's defects and recall, the demand falls by 4 units at each price. At the new equilibrium, each firm in the market earns and there will be a. zero economic profit; neither entry nor exit of firms b. positive economic profit; entries of new firms C. zero accounting profit; both entry and exit of firms d. negative economic profit; exit of existing firms
Suppose that each firm in a competitive industry has thefollowing costs: Total cost: TC=50 + 1/2q^2 Marginal cost: MC=q where q is an individual firm’s quantity produced. The marketdemand curve for this product is Demand: QD = 120 – P where P is the price and Q is the total quantity of the good.Currently, there are 9 firms in the market. a. What is each firm’s fixed cost? What is its variable cost?Give the equation for average total cost. b. Graph average total cost curve and the marginal cost curvefor q from 5 to 15. At what quantity is average total cost curve atits minimum? What us marginal cost and average total cost at thisquantity? c. Give the equation each firm’s supply curve. d. Give the equation for the market supply curve for the shortrun in which the number of firms is fixed. e. What is the equilibrium price and quantity for this market inthe short run? f. In this equilibrium, how much does each firm produce?Calculate each firm’s profit or loss. Is there incentive for…
Brand X is one of many firms in a competitive industry where each firm has a constant marginal cost of 2 dollars per unit of output. If marginal cost for Brand X rises to 4 dollars per unit and marginal costs of all other firms in the industry stay constant, by how much does the price in the industry increase? a. 2 dollars b. 1 dollar c. 0 dollar d. 2/n, where n is the number of firms in the industry e. None of the above.
Identification. Answer the following questions below. QUESTIONS: 1.) What are the ways to cut firm's production costs? 2.) What determines the firm's market power or competitive advantage? 3.) Graphically, in a purely competitive market, demand is equal to what? 4.) Using curves, graphically, a firm will shutdown if what? 5.) What is an output at which the firm makes a normal profit but noteconomic profit?
Two firms facing a demand curve are P = 50 -5Qwhere Q = Q1 + Q2. The cost functions of the two firms are:C1(Q1) = 20 + 10Q1C2(C2) = 10 + 12Q2Based on this information:a. Suppose both companies have entered the industry, then what is the price?and the profit-maximizing amount for the two firms under conditionsperfectly competitive market?b. What is the quantity, price and profit of the two firms ifcompanies collude in pricing?c. What are the quantities, prices, and profits of the two firms if theydo the Cournot strategy, and draw the reaction curves of the twothe company?d. What are the quantity, price, and profit of the two firms if theycarry out the stakeberg strategy.
Show a firm that is earning zero economic profits, but has some market power. Then, assume this market power is entirely eliminated when a new competitor enters the market with the same technology and produces a perfect substitute. Showing in your diagram how the firm must adjust its production level to most effectively compete with the new entering firm, explain why maintaining competition is important.
Question 6 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Price Price (a) Firm (b) Market MC MC $2.00 $2.00 #t $1.00 $100 100 200 @aadip 01 Q2 Quantity If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00? O 300 O 6,000 30,000 O 60,000