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ECON100A_17

# ECON100A_17 - Review 1 3 Suppose Q=L1/2 is the firms...

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1/4/2008 1 Review

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1/4/2008 2   3. Suppose Q=L 1/2 is the firm’s production function. (It uses labor and no capital.) Suppose the wage rate is 4. What is its supply function?
1/4/2008 3   8. Consider a firm whose long run total cost function is given by LTC(Q,w,r)=[Q 3 -Q 2 +Q]w 1/2 r 1/2 . At what value of P , the output price, is the firm just on the borderline between shutting down in the long run and producing in the long run? (Your answer may be expressed in terms of w and r.) Q P \$ LAC LMC

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1/4/2008 4 Market for Factors of Production DEMAND (for Factors of Prod) Market for Finished Goods HOUSEHOLDS FIRMS DEMAND (for Goods \$ \$ \$ \$ SUPPLY (of Factors of Prod) SUPPLY (of Goods CIRCULAR FLOW DIAGRAM
1/4/2008 5 Equilibrium Dynamics of  Competitive Markets

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1/4/2008 6 Market Supply: N identical Firms We know market supply in SHORT RUN because there is no entry of new firms N firms respond identically to a price change and we can map out quantity supplied. But… Entry complicates the long run P q* P Firm Market P Q Nq*
1/4/2008 7 Region I: P>LAC min Q*(P,w,r) solves : P=LMC(Q,w,r) Region II : P<LAC min Q*=0 Shut down Recall: Q \$ LMC LAC LAC min I II

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1/4/2008 8 If we add SMC curve to this picture, will it be steeper or flatter than LMC? A. Steeper B. Flatter C. Can’t tell Question 1 Q \$ LMC LAC LAC min I II
1/4/2008 9 What does a supply curve look like in the very short run, when neither L nor K can be changed? A. Horizontal line B. Vertical line C. Can’t tell Question 2 Q \$ LMC LAC LAC min I II

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1/4/2008 10 Market Supply Goal: We want to see how quantity supplied at the market level responds to price change We can draw market-level short run supply because there is no entry complicating things Long run market supply is trickier
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ECON100A_17 - Review 1 3 Suppose Q=L1/2 is the firms...

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