aps6x313_f05 - d No we do not have allocative efficiency...

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1. So: a. Note that P D = 510 – 10Q so that mr = 510 – 20Q. Also note that mc = 10. Now set mr=mc and solve for Q sm . So: 510-20Q sm = 10 Q sm = 25. Since the 20 mines have the same CONSTANT mc of $10, if does not matter how we divide the production up – so long as the sum of them all is 25. Plugging into demand we get P sm = $260. And finally, note that profit = (260*25) – (10*25) = 6250. b. See graph. -290 -190 -90 10 110 210 310 410 510 0 10 20 30 40 50 60 Q $ Demand mr mc Series4 Series5 c. Yes, we do have productive efficiency since the lratc=10 everywhere so its minimum value is 10 and we are producing at a point where lratc = 10.
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Unformatted text preview: d. No, we do not have allocative efficiency since we are not where the demand curve intersects the mc curve. That happens where P D = mc or at Q*=50. e. Dead-weight-loss is the area enclosed by the yellow marginal cost, purple series 5 and blue Demand. Its value is ½*25*250 = $3125. f. What type of barriers to entry story would be a plausible/reasonable explanation for the DeBeers monopoly? Input ownership. 2. See section 15.9 in the 6 th edition of the Varian text. Econ 313 - Wissink - Fall 2005 PS#6 – XtraQ - ANSWERS...
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