{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Solution to Question 1 (PPS 3)

# Solution to Question 1 (PPS 3) - b To determine the...

This preview shows page 1. Sign up to view the full content.

Solution to Question #1 on the Practice problem Set: a. Market supply is horizontal sum of individual firms’ supplies which are given by firms’ MC curves. Firm's TC = 9 + 0.1q 2 MC = 0.2q Then individual firm’s supply is given by P = MC = 0.2q We can solve for q in terms of P: P = 0.2q q = 5P (individual firm’s supply) Market supply curve is horizontal sum of all 50 firms’ supply curves: Q S = 50q=50(5P) Q S = 250P To obtain market equilibrium equate Q S and Q D to determine price and quantity 250P = 900 - 200P P = \$2.00 Q = 250P = 500
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: b. To determine the individual firm's output, equate price and marginal cost: P = 2 = 0.2q q = 10 Firm's π = TR – TC = 2*10 – (9+0.1*100) = 20 - 19 = 1 c. Firms are earning economic profit so we would expect entry to occur, causing the market supply curve to shift rightward. With new firms entering industry, the market supply increases, causing the market price to fall, which in turn reduces profits that each firm is earning. This will continue until we reach long-run equilibrium at zero profit....
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern