Question

2. When the printing preses was introduced to Europe in the mid-1000's, it reduced the cost of producing books. (Printing presses had been in se in China for over 700 years at the time.) Suppose the cost of production for each book publisher before the printing press was C@ = -397-594 (a) Derive expressions for the marginal cost and average cost of production for a publisher Comider the following the marginal and average cost curves for a book publisher before the introduction of the printing press. Suppose every possible publishing firm had access to the same production technology, and therefore had the same production function. (b) Would you describe publishing as a constant or increasing.coet industry? Explain. (e) Explain why the long-run equilibrium price before the printing press was 36 per book (d) If the aggregate quantity demanded in a city at this price was 60 books, how many publishe would have been in the market? After the printing press, suppose the cost function for a book publisher dropped to Co) = -3 +39 MC = 372-69-3 AC = 2-39+3

Answer 1

a. Marginal cost is the change in the total cost when an additional unit is produced. It is calculated as the derivative of the total cost with respect to the quantity. Here, the marginal cost thus will be: 3q^2-6q+6

The average cost, on the other hand, is the total cost divided by the quantity which means that (q^3-3q^2+6q+4)/q= q^2-3q+6+4/q

b. A constant cost industry is one where the average cost of producing does not increase with an increase in the output while it increases in the case of the increasing cost industry. Here since teh production of additional firms will require teh same machines or say teh same productuon technology and so teh costs would also be teh same. Thus this industry is a constant cost industry.

c. The long-run equilibrium for a firm is achieved where the firm produces at its minimum which is at the lowest level of the average costs of production, Here the AVC is lowest at $6, and thus the firm is in the long-run equilibrium.

d. Since each of the firms has the same production technology and the same cost and one firm produces 6 books, thus the total number of firms which will be required to produce 60 books is 60/6= 10 firms.