Question

Question 14 (1 point) Saved Consider the long-run market equilibrium in Question 13 as a starting point. Now suppose that demand changes to Q=120.0-4P overnight. In the new short-run equilibrium, the fixed cost of the existing firms are sunk. In addition, firms cannot immediately exit and enter the market, so that the number of existing firms stays the same as in the long-run equilibrium. What is the market price in the new short-run equilibrium? Your Answer: 26.67 Your Answer Question 16 (1 point) Firms in the short-run market equilibrium from Question 14 make positive profit (verify this!). So, eventually, new firms will enter the market and sunk fixed cost become avoidable fixed cost and the market enters a new long-run market equilibrium. How many firms will exist in this new long-run market equilibrium? No units, no rounding. Your Answer: Your Answer Question 17 (1 point) What is aggregate surplus in the long-run market equilibrium from Question 16? No units, no rounding. Your Answer:
Firms in the short run market equilibrium from question 14 make positive profit. so, eventually new firms will enter the market and sunk fixed cost become avoidable fixed cost and the market enter a new long run market equilibrium.How many firms will exist in this new long run market equilibrium? no units , no rounding

Answer 1

• Aggregate surplus is the sum of the areas of consumer surplus and poducers surplus.
• perfect competition maximises total surplus.producing less or more than the comepetitive output lowers total surplus.
• At the competitive equilibrium e1, with Q1 and p1

TS=A+B+C+D+E.

• producing less at e2 Q2 and p2

TS2=A+B=D.TS2 less than TS1

• As a consequences of roducing less C+E are lost.
• C+E is the deadweight loss [DWL]
• DWL is the net reduction in total surplus from a loss of surplus by one group that is not offset by a gain to another group from an action that alters a market equilibrium. Explained with the help of diagram given below:
  p, $ per unit Supply р \ Р Epal Demand MC Q2 Q1 Q, Units per year
  

Competive output Smaller Output Change {2-1}

Consumer Surplus (CS} producer Surplus {ps}	A+B+C D+E	A B+D	-B-C=^CS B-E=^ps
Total Surplus {TS}=cs+ps	A|+B+C+D+E	A+B+D	-C-E=^TS=DWL