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Econ100B PS3 Solutions

Econ100B PS3 Solutions - ECO 100B Problem Set 3 Answers...

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ECO 100B Problem Set 3 Answers will be posted on May 9, 2008 C ( q ) = 4 + q 2 , and faces a market demand of Q D = 10 P . (a) What is the long-run equilibrium price? Solution : Note that MC ( q ) = 2 q which is strictly increasing, and AC ( q ) = 4 q + q . At the long-run equilibrium price, p = MC ( q ) = AC ( q ) 2 q = 4 q + q q = 2 Therefore, p LR = 4 Solution 2 . (c) How much does the industry as a whole produce? Solution : Using the demand curve, the total industry quantity, Q = 10 4 = 6 . Solution 2. Consider the same question as above, but suppose that C ( q ) = 4 q . Can you still determine Solution : Now, note that MC ( q ) = AC ( q ) = 4 for all values of q , and that MC ( q ) is not increasing in q p = MC ( q ) = AC ( q ) = 4 So we know that LR equilibrium price is 4 between all production choices. From the market demand curve, the entire industry produc-

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Econ100B PS3 Solutions - ECO 100B Problem Set 3 Answers...

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