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hw7 - How much profit does the firm earn b In the long...

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Economics 108 Landsburg Homework #7 week of 10/30/06 1. Gus the cab driver rents a cab and pays for gas. Suppose the rental price of cabs falls. What happens to the price and quantity of cab rides that Gus offers? a) Answer in the short run. b) Answer in the long run. 2. Gus the cab driver rents a cab and pays for gas. Suppose the price of gasoline falls. What happens to the price and quantity of cab rides that Gus offers? a) Answer in the short run. b) Answer in the long run. 3. Suppose the demand for cab rides falls. What happens to the price and quantity of rides offered by Gus the cab driver? a) Answer in the short run. b) Answer in the long run. 4. Every firm in the widget industry has fixed costs of $12 and faces the following marginal cost curve: Quantity Marginal Cost 1 $2 2 4 3 6 4 8 5 10 6 12 a) Suppose the price of widgets is $10. How many widgets does each firm produce?
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Unformatted text preview: How much profit does the firm earn? b) In the long run, is there entry or exit from this industry? c) What is the long run equilibrium price of widgets? In long run equilibrium, how many does each firm produce? 5. Every firm in the widget industry has fixed costs of $15. The following chart show the industry-wide demand curve and the marginal cost curve of a typical firm: Industry Wide Demand Firm’s MC Curve Price Quantity $5 750 10 600 15 450 20 300 25 150 Quantity Marginal Cost 1 $5 2 10 3 15 4 20 5 25 Suppose the industry is in long run equilibrium. a) What is the price of a widget? b) How many firms are in the industry? c) On the short-run supply curve, what quantity corresponds to a price of $10?...
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