Question

1. Suppose supply in a market is Qs = P + Ps = 30, where P is the price and Q is the quantity. There is perfect competition in this market and demand is Qp = 80 - P + PD = 160 - 20. (D) The equations to the right are the inverse functions. (a) Calculate price and quantity in equilibrium. Illustrate the equilibrium in a figure. Mark carefully the slopes and in- tercepts (the intersections of the curves with the axes). (b) Calculate the consumer surplus and the producer surplus. Illustrate them in the figure. (c) Suppose there are 20 identical companies on the market. The marginal cost of an individual company is MC' = 60.9 (MC) where q is the quantity in the individual company (which means that Q = 20.). Show that this means that the market supply curve is the one given in equation (S). (d) The average variable cost of the individual company is AVC = 204 (AVC) Where is the 'shut-down point'? Explain in connection with a figure.

Answer 1

221. Po No supply, ds: 1 P = Ps 38 Qo = 80 - 1 P (=) lo = 160-28. In equilibrium , Polo = 38 = 160- 20 58 2. 160 Q 2 too 32 18 = 32 P = 3x32 p = 96 | = 961 160 Po=160-28 = 39 32 so

Dato cela Pg No Consumer surphes = I x 32 x (160-96) 1 x32 (64) 2 - 32x32 3024. = Producer susphis = 1 x 32 x 96 48 = 1536 Marginal cost = 60x9 I individual firms supply function is p = 60x9, - for 20 identical forms. 0 20x9 =Q supply came is = P = 3 x 20 q =) P = 30 supply cure is goin by

Date ano. Po No d) shut down point is where PS AVC = P S 209 given that p= 96, shut down pont 19 =4.8 is