In 9.28 a constant cost industry in which firms have "U" shaped average cost curves, the long run market supply curve is a horizontal line. This market supply curve is not a horizontal sum of individual firms' long-run supply curves. In this respect the long run market supply curve differs from the short run market supply curve, which, in a constant cost industry, will equal the horizontal sum of individual firms' short run supply curves. Why does the derivation of the long-run market supply curve differ from the derivation of the short run market supply curve?
a) Draw a graph illustrating the free trade equilibrium (with no tarrif). Clearly illustrate the equilibrium price. b) By how much would the tarrif increase producer surplus for domestic radio suppliers? c) How much would the government collect in tarrif revenues? What is the deadweight loss from the tarrif? 10.12 In a perfectly competitive market, the market demand curve is given by Qd = 200 - 5Pd, and the market supply is curve given by Qs = 36Ps . a) Find the equilibrium market price and quantity demanded in the absence of price controls. b) Suppose a price ceiling of $2 is imposed. What is quantity supplied with a price ceiling of this magnitude? What is the size of the shortage created by the price ceiling? c) Find the consumer surplus and producer surplus in the absence of a price ceiling. What is the net economic benefit in the absence of the price ceiling? d) Find the consumer surplus and producer surplus under the price ceiling. Assume that rationing of the scarce good is as efficient as possib...