# EXAM PRACTICE QUESTIONS 8

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University of Toronto Mississauga

Economics

ECO200Y5

Robert Barber

Summer

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TUTORIAL 9MONDAYJULY 7 2014 4PM5PMQUESTION 94p 342Suppose there are 1000 identical firms producing diamonds and that the shortrun total cost curve for each firm is given by 2STCqwqand shortrun marginal cost is given bySMC2qwwhere q is the firms output level and w is the wage rate of diamond cutters a If w10 what will be the firms shortrun supply curve What is the industry supply curve How many diamonds will be produced at a price of 20 each How many more diamonds would be produced at a price of 21b Suppose that the wages of diamond cutters depend on the total quantity of diamonds produced and the form of this relationship is given by w002Q where Q represents total industry output which is 1000 times the output of the typical firm In this situation show that the firms marginal cost and shortrun supply curve depends on Q What is the industry supply curve How much will be produced at a price of 20 How much more will be produced at a price of 21 What do you conclude about how the shape of the shortrun supply curve is affected by this relationship between input prices and outputQUESTION 96p 343A perfectly competitive painted necktie industry has a large number of potential entrants Each firm has an identical cost structure such that the longrun average cost is minimized at an output of 20 units q20 The minimum iaverage cost is 10 per unit Total market demand is given byQ150050Pa What is the industrys longrun supply scheduleb What is the longrun equilibrium price P The total industry output Q The output of each firm q The number of firms The profits of each ifirm

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