Question

I JUST NEED D,E,F answered. posted a-c.

EconS 305 - Intermediate Microeconomics without Calculus Problem Set #4 1. Perfect Competition Consider a market that faces the following market supply and demand functions QS = -2+p QP = 10 -5P where identical firms face the total cost function of TC = 4+9+92 a) What is the market price? b) Derive the average variable cost, average total cost, and marginal cost functions. c) in the short rmm, how much does each firm produce? d) In the short rum, how much economic profit or loss will be obtained? e) Based on the results in part (d), will firms want to enter or exit the market? Why? f) In the long rum, what is the market price? (Hint: You can find the long run firm quantity by setting two of the cost functions equal to one another

Answer 1

c) Firm produces where P = MC is set. Here P is $8 so firm produces 8 = 2q + 1 or q = 3.5 units

d) Profit = revenue - loss = 8*3.5 - 4 - 3.5 - 3.5^2 = 8.25

e) Firms will be entering the market in long run because short run generates profits for existing firms

f) Use P = MC = AC

2q + 1 = 4/q + 1 + q

q = 4/q

q^2 = 4

q = 2

In the long run firm produces 2 units and the market price is P = 2*2 + 1 = $5.