Draw a dashed curve showing the equilibirum price trajectory

Reference no: EM132196975

Question: A competitive firm has constant marginal cost of extraction C.

(A) Draw a dashed curve showing the equilibirum price trajectory(price as a function of time); list the conditions used to obtain this graph, and explain how each is used.

(B) On the same figure, draw a solid curve showing the equilibirum price trajectory under a slightly higher value of C. Justify your figure and provide an economice explanation.

As a working hypothesis, assume that the change in C alters the initial price and the steepness of the curve. with this hypothesis, you need to consider only four possibilities: the solid curve(corresponding to higher C) might begin at a lower or higher price and be flatter or steeper. The equilibirum conditions you listed in part a enable you to determine which of the four possibilities is correct. you can then confirm that your working hypothesis must be correct.

Reference no: EM132196975

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