+1-415-670-9189
info@expertsmind.com
What is the equilibrium price, market quantity
Course:- Microeconomics
Reference No.:- EM13950466




Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Microeconomics

Fixed cost for a firm is given by FC = 400 and variable cost is given by VC = 5q + 1⁄4q2, where q is the output level of the firm in a given period. Therefore marginal cost for the firm is given by MC = 5 + 1⁄2q (those of you who know calculus can confirm this - MC is the first derivative of VC with respect to q).

a) Derive an expression for average variable cost (AVC). Graph MC and AVC up to q = 80. Assuming that the firm is a price-taker operating in a competitive market, derive an expression for the firm's supply curve, (ie. the profit maximizing output for the firm as a function of the market price). What is the shut-down price for this firm (ie. what is the price at or below which the firm chooses to produce zero)?

b) What does the MC curve tell us about the marginal product (MP) of the firm's variable factor of production (presumably labour)?

c) Derive an expression for average total cost (ATC). At what quantity is ATC at its minimum (at what ATC level)? In your diagram, sketch ATC and confirm that it is U-shaped. [Hint: Calculate ATC when q=20 and q= 80.]

d) Assuming that there are 150 identical firms operating in this competitive industry, what is the equation of the industry supply curve? If the demand curve is given by Q = 4500 - 100P, what is the equilibrium price, market quantity?

e) Given your answers from the previous part, what is the output level of each firm? Calculate and illustrate in your diagram the profit level for the firm? Is this a long run equilibrium? Explain.

f) Assuming that the minimum point of the short run ATC curve for all firms is also the minimum point of the long rung average cost curve (LRAC) what is the long run equilibrium price? What is the long run equilibrium market quantity and quantity per firm? How many firms are there in the long run equilibrium?




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Microeconomics) Materials
Compute the physical units of production. Compute equivalent units of production for materials and for conversion costs. Determine the unit costs of production.
During the last 7 years the US government has gengaged in mass amounts of fiscal stimulus to get the economy moving. Take either the classical or Keynesian point of view on th
Draw an AD/AS graph and a money market graph side-by-side. For the money market, use an upward sloping money supply curve and assume that the equilibrium interest rate in the
Review the effect of Volume- Variety on design consideration operation. Review the key operation of servicing firm who offer product and service to customer. Reflect upon the
List three factors that can change the economy's potential output. What is the impact of shifts of the aggregate demand curve on potential output? Illustrate your answer wit
The manager concluded that they were most likely to win when the third-string team played the most, and he therefore recommended that the third-stringers should become the f
The Delphi method used for forecasting: Obtains forecasts through a comparative analysis with a previous situation. Uses measures that are believed to influence the behavior o
A publisher of financial management software offers full refunds to any dissatisfied purchaser. Is the refund policy a signal of product quality? Explain why, and how signalin