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PS 5

# PS 5 - How much coffee does each firm produce How many...

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Quantitative Intermediate Microeconomics Problem Set #5 The coffee industry in Optimality is a constant cost competitive industry. It is initially composed of 100 identical firms. When the firms are at the minimum of their long-run average cost curves, they use K^ of capital. The total cost function for K^ of capital is given by C(q) = 2q 2 + 60q+200. The demand curve for coffee in Optimality is Q D = 1200 - 5P. 1) What is the short-run equilibrium price and quantity of coffee in Optimality if capital=K^ for each firm? How much coffee does each firm produce? How much does each firm lose in the short run? Let Z equal the total amount that each firm loses per pound of coffee in the short run (i.e. Z=total loss/number of coffee pounds produced). 2) What is the long-run equilibrium price and quantity of coffee in Optimality?
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Unformatted text preview: How much coffee does each firm produce? How many firms are in the industry? Let N^=the number of firms that are in the industry in long-run equilibrium. 3) Show graphically the short-run price and quantity for the individual firm and the entire industry. Show graphically how individual firms and the industry adjust in the long run. 4) Because the coffee industry provides employment for many workers in Optimality, the government wants to keep exactly 100 firms in the industry, how much coffee must it buy to keep all of the initial 100 firms in the industry in the long run? What will be the total cost of the program? (Hint: under what circumstances will exactly 100 firms voluntarily choose to be in the industry in the long run?)...
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