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h8_ans - Q S = Q D = 3,200,000 – 200,000(3 = 2,600,000...

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1 The Colorado College Department of Economics and Business Block 7 Econ 207 HW 8. 1. ( a) Q S = 0 = –1,000 + 2,000P 1,000 = 2,000P P = 1 / 2 per lb. Price will have to be greater than 1 / 2 per lb. for flounder to be supplied in Cape May. (b) At equilibrium, Q D = Q S : –1,000 + 2,000 P = 1,600 – 600P 2,600 P = 2,600 P = 1 /lb. Equilibrium occurs at P = 1/lb. (c) –1,000 + 2,000 P = 2,200 – 600P 2,600P = 3,200 P = 32/26 = 16/13 per lb = 1.23 per lb. (d) 2. (a). Q D = 2,600,000 – 200,000 P In the long run, P = $3, so Q S = Q D = 2,600,000 – 200,000(3) = 2,000,000 Since Q S = 2,000,000 bushels, there are 2,000,000 bushels 2,000 farms 1,000 bushel per farm = (b) Q S = Q D = 3,200,000 – 200,000P When demand goes up, immediately, Q S = 2,000,000, so 2,000,000 = 3,200,000 – 200,000P 1,200,000 = 200,000P P = $ 6 /bushel 1600 D S Q P 2200
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2 Profits per farm are given by: Profit = TR – TC = 1000(6 – 3) = $ 3,000 (c) P = $3/bushel in the long run.
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Unformatted text preview: Q S = Q D = 3,200,000 – 200,000(3) = 2,600,000 bushels There will now be 2,600 farms (d) The rise in market demand shifts the demand curve to the right. This raises price. New firms enter and the supply curve now shifts to the right again bringing down profits to zero. 3. (a) LR supply horizontal at P = MC = AC = 10. (b) Q* = 1,500 – 50P* = 1,000. Each firm produces q* = 20. There are 1000/20 = 50 firms. Profit for each firm = TR – TC = P.Q – Q.(AC) = 10(20) – 20(10) = 0. . (c) SAC = STC/q = .5q – 10 +200/q SMC = d(STC)/dq = .5(2)q -10 = q -10. (d) SAC curve reaches a minimum when SAC = SMC. So, .5q – 10 + 200/q = q -10 q = 20. The short-run supply curve for a firm is given by P = MC = q – 10. So q = P + 10. E q $3 ATC MC Temporary Profits S 0 D 0 Long-run Equilibrium Q Market Equilibrium Firm Equilibrium $6 D 1 S 1 P P 2,000,000 2,600,000 1000...
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