Quantitative Microeconomics
Answers to Problem Set #5
1)
The SR equilibrium price and quantity are determined by the intersection of market supply and market
demand.
The typical firm takes the equilibrium price as given and chooses output to maximize profits.
That is,
a)
SRTC=200+60q+2q
2
b)
SRMC=
∂
SRTC/
∂
q=60+4q
c)
The typical firm chooses output by setting P=MC or P=60+4q
d)
To find the firm’s SR supply curve, solve for q or q=(P60)/4
e)
Since there are 100 firms, industry supply (Q
s
) is given by 100q or Q
s
=100(P60)/4 or Q
s
=25P
1500
f)
Setting market demand (Q
d
) equal to market supply (Q
s
):
12005P=25P1500
g)
Solving for P: 30P=2700 or P=90
h)
Substituting P into either market demand or market supply: Q
d
= Q
s
implies 1200(5*90)=(25*90)
1500=750
i)
The typical firm takes the equilibrium price as given. The typical firm choose q=(P60)/4 =
(9060)/4=7.5
j)
Profits for the typical firm (
π
) equal total revenue (P*q)total costs(200+60q+2q
2
)=
(90*7.5)
(200+(60*7.5)+(2*(7.5)
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 Fall '07
 Loury
 Microeconomics, Supply And Demand, Typical Firm, SR Supply

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