solutions5[1]

solutions5[1] - EC201, Fall 2007, Prof. Jordi Jaumandreu...

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EC201, Fall 2007, Prof. Jordi Jaumandreu Solutions to Problem set #5 Competitive Markets 1. When the marginal cost curve hits the price line from below. At this point, an extra unit of output would imply loses. 2. Suppose f rms only use labor, measured in total hours H , producing according to the production function q = H. Hours are the result of multiplying the number of workers L by average hours per worker h, . i.e. H = hL. The wageperhourisafunct iono f h , w ( h ) , because overtime hours are paid more than normal hours. So total cost for a f rm will be C = w ( h ) hL and the cost function C = w ( h ) q. a. Notice that MC = AC = w ( h ) . W iththeincreasein h, both MC and AC are likely to rise. b. Individual curves shift upwards, so the aggregated curves will also shift upwards (more the higher the output) . The enlargement of the demand is likely to induce therefore a higher equilibrium output and price. It is also possible
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solutions5[1] - EC201, Fall 2007, Prof. Jordi Jaumandreu...

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