EC201, Fall 2007, Prof. Jordi Jaumandreu Problem set #5 Competitive Markets 1. Many marginal cost curves are U-shaped. As a result, it is possible that the MC curve hits the demand or price line at two output levels. Which is the pro f t maximizing output? 2. The Internet is a f ecting holiday shipping. As people have become com-fortable with e-commerce, they put o f December purchases to the last minute and are more likely to have them shipped. As a result, e-commerce f rms have to hire extra workers during this period and many regular workers log substantial overtime hours (up to 60 a week). a. Are a f rm’s marginal and average costs likely to rise or fall with this extra business? (Discuss economies of scale and the slopes of marginal average cost curves) b. Use side-by-side f rm-market diagrams to show the e f ects on the number of f rms, equilibrium price and output, and pro f ts of such a seasonal shift in demand for e-retailers in both the short run and the long run. Explain.
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