Question

[1] A perfectly competitive aluminum producer is currently producing a quantity where the market price is $0.67 per pound (i.e., 67 cents per pound), average total cost is $0.70, and average variable cost of $0.60 (which corresponds to the minimum point on the average variable cost curve). Would you recommend this firm expand output, contract output, or shut down in the short-run? Provide a graph to illustrate your answer.

[2] 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: Marginal Cost: 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?

[3] A monopolist is operating in the short-run, facing a market demand given by the following: Q = 1000 - 2P, where Q is market quantity and P is market price. Suppose the firm’s short-run total cost (TC) is: TC = 100∙Q. Find the price and quantity that maximizes this firm’s short-run profit. What is the level of profit? Determine the values of consumer surplus, producer surplus, and market welfare under monopoly. If the firm operated as if perfectly competitive (i.e., where P = MC), what would be the values of consumer surplus, producer surplus, and market welfare? What is the value of the deadweight loss in market welfare due to monopoly?

[4] The market for lemonade in a town consists of two lemonade stands (i.e., firms), 1 and 2. An agricultural economist estimates the following demand for lemonade in this town: Q = 300 - P, where Q is the market quantity and P is the market price. Total costs of the two firms are indicated below: TC1 = 60Q1 TC2 = 40Q2 Acting as Cournot competitors, find and graph the reaction functions of each firm (indicating appropriate horizontal- and vertical-axis intercepts). Determine the Cournot equilibrium output of each producer, as well as the profit of each producer.

Answer 1

1) A perfectly competitive firm producing the output at where P =$0.67 at this output ATC = $0.70 and AVC = $0.60

a long run equilibrium is perfect competitive is attain at a output where P =ATC . here P <ATC the firm is experiencing loss but can cover its variable cost of producing , so we cannot suggest the firm to shut down and hence i would suggest the firm to contract his output to the minimum point of the ATC to make his loss into zero. produce the quantity at where P =ATC. because when a firm produce lesser, its VC decrease and so thus TC also decrease and therefore ATC decrease also . so then firm is experience zero economic profit .

2) please upload it againt it against HomeworkLib policy.