PS7 - ECON 211 - Homework # 7 1. (30 points) Consider a...

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ECON 211 - Homework # 7 1. (30 points) Consider a perfectly competitive market for methamphetamine. Cletus runs an unsophisticated meth lab in an abandoned K-mart in rural Oklahoma. His production technology is representative of all meth labs in the United States. His capital investment of buckets and mixing bowls costs $9. His marginal cost of producing another unit of methamphetamine is given by 2Q. Thus, his total variable costs are given by Q 2 . a) What is the equation for the average total cost of producing methamphetamine? b) In a long-run equilibrium, how many grams of meth does Cletus produce? What is the price? c) Assuming market demand for meth is given by Q=900-100P, how many meth labs are in operation in the United States? Now suppose that methamphetamine production is legalized but does NOT change demand for the drug. Instead, Pfizer and Merck enter the methamphetamine production business. As the risks of drug production are now lower, the marginal cost of producing another unit of methamphetamine falls to Q. Total variable costs are given by Q
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This note was uploaded on 05/03/2008 for the course ECON 211 taught by Professor Na during the Spring '08 term at Rice.

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PS7 - ECON 211 - Homework # 7 1. (30 points) Consider a...

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