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PS6AK_econ100_winter2010

# PS6AK_econ100_winter2010 - Problem Set#6 Answer Key 1 a Qd...

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Problem Set #6: Answer Key 1. a) Qd = 100 2P, Qs = 10 + P Thus equilibrium price and quantity is 100 2P = 10 + P 90 = 3P P = 30, Q = 40. Now, if a price floor is instituted at \$35, Qd = 30, Qs = 35+10 = 45. Therefore, we have excess supply in the market of 15 units. b) Before Price Floor: CS: (1/2) (40) (20) = 400 PS: (30) (10 + 40) (1/2) = 750 (Note in this case the Producer Surplus is a trapezoid!) TS: CS + PS = 400 + 750 = 1150 After Price Floor: CS: (1/2) (30) (15) = 225 The calculation of the producer surplus is a little more complicated. Referring to the graph, we first calculate the area of A and then the area of B. A: (15) (30) = 450 B: (20)(0.5)(10+30) = 400 So, P.S. = 850 TS: CS + PS = 1075 2. a) Equilibrium Price and Quantity in the short run: 10000 200 P = 2000 + 800P 1000P = 8000 P = 8. To determine quantity, we plug the price back into either the demand or supply equation. So, Q = 10000 200(8) = 10000 1000 = 9000 units. b) . Note here that variable costs are that portion of the cost function which varies with the amount of output produced.

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c) In the short run, all firms will produce where P = MC, in a perfectly competitive industry. This leads to q = 150 units. Profits are equal to the difference between total revenue and total
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PS6AK_econ100_winter2010 - Problem Set#6 Answer Key 1 a Qd...

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