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Econ501aH4S07 - The net price received by f rms is the new...

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The Ohio State University Department of Economics Econ 501.02 Prof. James Peck Homework #4 (due Wednesday, May 23) 1. Binger and Ho ff man, chapter 12, question for discussion #3, page 328. 2. Consider the following production function x = 32 K 1 / 4 L 3 / 4 . Suppose that input prices are given by w = 3 and r = 1 . (a) In the short run, capital is fi xed at one unit, K = 1 . Find the fi rm’s short run supply function. (b) If all fi rms in a perfectly competitive industry have this production func- tion, what will be the long run equilibrium price of good x? 3. Consider the following market demand function and (short-run) market supply function X d = 2900 100 p x X s = 200 p x 400 . (a) Find the short-run equilibrium price and quantity. For parts (b)-(d), suppose that a tax of $1 per unit is imposed, to be paid by the fi rms. [That is, the new equilibrium price is the price paid by consumers.
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Unformatted text preview: The net price received by f rms is the new equilibrium price minus the $1 tax.] (b) What will be the new short-run equilibrium price and quantity, after the tax is imposed? (c) Explain how the burden of the tax is shared by consumers and f rms in the short run. (d) Assume that the market was in long-run equilibrium (as well as short-run equilibrium) before the tax was imposed. What will be the new long-run equilibrium price and quantity, as a result of the tax? [Hint: If the market was in long run equilibrium before the tax, and if you know what the price was from part (a), that tells you what the minimum LRAC was before the tax. What is the minimum LRAC after the tax?] 1...
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