Assignment 2 summer 2017 with answer.doc

Assignment 2 summer 2017 with answer.doc - Department of...

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Department of Economics Carlton University ECON2020-A. Intermediate Microeconomics I: Producers and Market Structure 2017 Summer Assignment 2. Due before the class on June 13 2017 Note: You should show your step-by-step answers to the questions above. If only final answers were provided, no marks will be counted for the question. 1. (10 points) Suppose market demand in a competitive market is Q = 1000 - 4p. If all firms have LRAC = 50 - 5q + q 2 , how many identical firms will there be when this industry is in long-run equilibrium? Answer: The long-run market supply curve is horizontal at the minimum LRAC. LRAC is minimized when -5 + 2q = 0 or q = 2.5. At this level of output, LRMC = LRAC = 43.75. At this price, 825 units are demanded. If each firm produces 2.5 units in the long run, then 330 firms will be in this market. 2. (10 points) The above figure shows the market for a given product. Defining welfare as consumer surplus plus producer surplus, What areas are the social welfare associated with perfect competition, single-price monopoly, and a perfect-price-discriminating monopoly? Which market structure(s) maximize social welfare? Answer: Social welfare equals Perfect competition: A + B + C + D + E Single-price monopoly: A + B + D Perfect-price-discriminating monopoly: A + B + C + D + E Social welfare is greatest under either perfect competition or perfect price discrimination.
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