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ECON 1B03 Study Guide - Final Guide: Deadweight Loss, Budget Constraint, Economic Surplus

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School
McMaster University
Department
Economics
Course
ECON 1B03
Professor
Aleksandra Gajic

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ECON 1B03 Full Course Notes
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ECON 1B03 Full Course Notes
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Document Summary

Must-try problems for the exam: demand and supply for gps units in a competitive market is given by qd = 750 . At q = 25, atc = 3(25) = . Since > 0 , firms are making positive profit ----- there will be entry into the industry in lr: let"s suppose that min atc = (eve though it isn"t). If p = 75, qd = 750 2(75) = 600. 12. 5 = q number of firms = 600/12. 5 = 48 firms: a monopoly faces market demand of p = 100 q. Its mr = 100 2q and its mc = 100 2q = 40 2q = 60 q = 30. If perfect competition, p = mc 100 q = 40 p = 100 30 = 70 so q = 60. Ps = . 5(100-40)(60) = : here"s clay"s production function for gizmos per hour. The going wage rate is per hour.

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Related Questions

Suppose the local crawfish market is perfectly competitive, with the following market demand and supply: Market Demand: QD = 6500 - 100P Market Supply: QS = 1200P, where market quantity demanded (QD) and market quantity supplied (QS) are measured in pounds and price (P) is measured in dollars per pound. Assuming all firms have identical costs, suppose the typical firm in the market has the following short-run total cost (TC) and marginal cost (MC), with q being the quantity produced by the firm: Total Cost: TC=722+q2/200 Marginal Cost: MC=2q/200

A. What is the price at which a firm is indifferent between producing in the short-run and shutting down production?

B. Determine the market equilibrium price and quantity of crawfish, the output supplied by each firm, and the profit of each firm. How many firms must currently be in this market?

C. Based on your answer to B, would you expect to see entry or exit in the long-run? How would this impact the price of crawfish over time, ceteris paribus?

Suppose you are given the following information about a particular perfectly competitive industry:

QD= 6500-100P .....Market demand

QS= 1200P .....Market Supply

C(Q)=722+(Q2)/200 ......Firm's total cost function

Assume all firms in this perfectly competitive industry are identical.

a) Find the equillibrium price and the equilibrium quantity for the entire industry, the output supplied by the firm, and the profit of each firm.

b) Would you expect to see entry into or exit from this industry in the long run? Explain. What effect will entry or exit have on market equilibrium?

c) Suppose the long run total cost function is given by C(Q) = 6Q-3Q2+Q3. What will the price be in long run equilibrium in this industry? Is profit positive, negative or zero? Explain.

Suppose the market demand and supply functions are QD = 220 - 1.6P and QS = 4P - 116. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.

Q) You've researched and found that most firms in the market currently experience costs such that TC = 30 + 65Q - 14Q2 + 2.4Q3. Determine whether or not you should enter this market.

a. Firms are profitable when P exceeds MC; this only occurs at very low levels of output for my firm and thus I should not enter.

b. Plugging the market equilibrium quantity into this total cost function results in huge costs for my firm, so I should not enter.

c. Where the current equilibrium P = ATC, that price exceeds the marginal cost so I would be profitable upon entering.

d. Using the P=MC rule, the equilibrium price is above ATC at the best quantity, so entering would be profitable.