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Unformatted text preview: Additional practice for midterm 2 (11/13/08) Problem 1 Assume there are 7 identical firms each with short-run cost functions equal to: C = 10 + 2 q + q 2 a. How much q does a single firm supply as a function of price? answer:
#1 P !1 % qsingle firm = $ 2 0 % & if P " 2 if P < 2 b. What is the market supply curve (total quantity supplied as a function of price)? answer:
#7 P ! 7 % Qmarket = $ 2 0 % & if P " 2 if P < 2 c. Suppose the government starts collecting a $2 tax for each unit of output. What is the new market supply curve (total quantity supplied as a function of price)? answer:
# 7 P ! 14 % Qmarket = $ 2 0 % & if P " 4 if P < 4 Problem 2 (solutions at review session Monday) Consider the following diagram that shows supply and demand for a good in a single country (marked “local”), along with a horizontal line representing supply from world markets (marked “world”). Free trade is allowed. P 10 Slocal 6 3 Dlocal 2 4 7 10 Sworld Q a) How many units of the good does the country get from local producers and how much does it import or export at the initial equilibrium? b) Suppose the government introduces a tariff of $3 per unit imported. How does local producer surplus change? Local consumer surplus? How much revenue does the government raise? What is the deadweight loss? (answer using numbers) ...
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This note was uploaded on 12/02/2009 for the course ECON econ taught by Professor For got during the Spring '09 term at UCSD.
- Spring '09
- for got