Chapter_23_Practice_Quiz_Answers

Chapter_23_Practice_Quiz_Answers - Chapter 23 Practice Quiz...

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Chapter 23 Practice Quiz Answers D. Gollin November 24, 2004 23.1 If the cost of plaster and labor is $9 per gnome and everything else is as in problem 23.1, what is the lowest price of gnomes at which there is a positive supply in the long run? (Remember that in order for there to be a positive supply in the long run, producers need to get their money back plus a 10% rate of return on their investment in a gnome mold.) The gnome mold costs $1,000 and allows you to make 500 gnomes per year. To solve this problem, recall that the marginal (variable) cost is $9, and total costs are ( 29 1,100 9 C q q = + . In the long run, the price must be greater than the minimum average total cost, which will be achieved at q = 500 (since the cost function is linear in q and there are fixed costs involved). Thus, the price must be greater than 5,600 11.20. 500 = 23.2 Suppose that the garden gnome industry was in long-run equilibrium given the circumstances described in Problem 23.1. Suppose that it was discovered to everyone’s surprise … after it was too late to change orders for gnome molds, that
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This note was uploaded on 05/02/2008 for the course ECON 150 taught by Professor Eduardofaingold during the Fall '08 term at Yale.

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Chapter_23_Practice_Quiz_Answers - Chapter 23 Practice Quiz...

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