Consider a firm with the following production schedule

Apr 8th, 2015
Steve1995
Category:
Accounting
Price: $20 USD

Question description

1.  Consider a firm with the following production schedule and a fixed cost in the short run of 19.  This fixed cost comes from using the unique quantity of the fixed input that minimizes LRAC.  Assume all of the firms are identical firms in the long run and all the firms can only produce whole quantities (i.e.,  Q=3.5 not possible)

 

  q  VC

  1  16

  2  29

  3  40

  4  49

  5  59

  6  71

  7  86

  8  106

a)  Find the LR comp. eq. price, firm quantity, and market quantity if this LR equilibrium has 100 firms.  (1 point)

Assume there is a new market demand for this good that contains the following points:

P  QD  P  QD  P  QD

8  1400  13  1150  18  900

9  1350  14  1100  19  850

10  1300  15  1050  20  800

11  1250  16  1000  21  750

12  1200  17  950  22  700

b)  Find the new SRCE price, firm quantity, market quantity, and firm profit with this new demand function.  (1 point)

c) Find the new LRCE price, firm quantity, and number of firms with this new demand.  Explain why the number of firms found here is consistent with what you found in (c)  (1 point)

d)  Draw a picture of the market and firm illustrating the SR and LR situation in (b) and (c).  (1 point)


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