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Ossuary produces whole wheat bread which sells for $3 a loaf. To produce an additional loaf of bread, it would cost Ossuary $3, but the average loaf only costs them $2.50. Assuming that the market for bread is competitive, is Ossuary in short-run equilibrium? Why or why not? Is Ossuary in long-run equilibrium? If so, explain why. If not, explain what would happen in the market to bring it to equilibrium.

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019

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Related questions

Kathy's Bakery is a local full-service bakery in Omaha, Nebraska. Kathy sells loaves of wheat bread for $3 a loaf. Of this amount, $1.50 is profit contribution. She is considering an attempt to differentiate her shop from several other competitors by only producing a special rice bread for customers allergic to wheat. Doing so would increase her unit cost by 50ร‚ยข per rice loaf. Current monthly profits are $400 on 800 unit sales.

A.

Assuming average variable costs are constant at all output levels, what is Kathy's total cost function before the proposed change?

B.

What will tbe total cost function be if rice loafs are produced?

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Assume rice loaf prices remain stable at $3. What percentage increase in sales would be necessary to maintain current profit levels?

Market for bread

Price Quantity demanded Quantity supplied
50 0 40
40 10 30
30 20 20
20 30 10
10 40 0
0 50 0

1. What is the equilibrium price and quantity in this market?

2. Suppose that the price of butter falls dramatically (due to lower butter production costs) so that the quantity demanded for bread increases by 40 units at any price. By how much does the price of bread change? By how much does quantity change?

3. Suppose that bread buyers are forced to wait in long lines in order to buy bread. If the value of their time can be estimated at $10/ hour, about how long would you expect people to be waiting in line to get a loaf of bread?

4. Suppose the government wishes to alleviate the problems caused by upward price pressure due to the price ceiling by taking all fresh bread off the market; all bread sold must be at least 1 day old. Would you expect this regulation to achieve the desired effect? Explain your answer?

The daily demand for travel at a small regional airport is initially QD = 1000 - p; where quantity is in passengers and price is in dollars per passenger. There are initially 10 price-taking firms serving this market and each of them has the production function: q = sqrt (lk) where q is in passengers, and labor and capital are in some appropriately specified units. The price of a unit of labor is w = 100 per day; the price of a unit of capital is v = 100 per day, and this industry has constant costs. Each firm initially has a capital stock of k0 = 80. day; and this industry has constant costs. Each firm initially has a capital stock of k0 = 80.

(a) Derive the short-run cost function, SC(q), for each firm in the market.

(b) Derive the short-run market supply function, QS.

(c) Find the short-run competitive equilibrium price, p*, and quantity, Q*. How much labor, L*, does the industry employ at the competitive equilibrium?

(d) Derive the long-run cost function, C(q), of each firm in the industry.

(e) Describe the long-run market supply curve. Does the short-run competitive equilibrium at (Q*; p*) also correspond to a long-run competitive equilibrium? Explain why or why not.

Now, imagine that a catastrophic event causes the daily demand for air travel in this market to fall unexpectedly to ~QD = 750 - p Continue to assume that each of the 10 firms has a capital of k0 = 80 in the short run.

(f) Find the new short-run competitive equilibrium price, p**, and quantity, Q**, in this market. How much labor, L**, does the industry employ in the new short-run competitive equilibrium?

(g) What is the new long-run competitive equilibrium price, p***, and quantity, Q***? Describe what must happen as the industry moves from the short-run competitive equilibrium at (Q**; p**) to the long-run competitive equilibrium at (Q***; p***). How much labor L*** does the industry employ at the new long-run equilibrium?

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