Question

(20 points) Suppose honey is produced in a beehive using bees and sugar.  Each honey producer uses one beehive which she rents for $40/month. Producing q gallons of honey in one month requires spending 4q dollars bees, and 2q²dollars on sugar.

a) (4 points) What is the total cost of producing q units of honey for an individual honey producer in a given month?

b) (4 points) In general, if the total cost of producing honey is a + bq + cq², then the marginal cost of producing honey is b + 2cq.  Assuming each honey producer operates as a price-taker, what is the monthly supply curve for an individual producer?

c) (4 points) Let Q be the total market supply, and q is the supply of an individual firm.  Therefore, q = Q/n where n is the total number of firms in the market.   Suppose the demand for honey is given by Q = 548-4P.  Also, suppose there are 60 honey producers in the market.  What is the equilibrium price of honey?

d) (4 points) How much profit does an individual producer make in a month?

e) How many firms will there be in long run equilibrium?  (Remember, a firm will enter the market as long as it can make a positive profit, otherwise a firm will not enter the market.)  

Answer 1