problem13S06key

# problem13S06key - Homework Problem Set#13 NEW E303 Davis...

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Homework Problem Set #13 NEW E303 Davis, Spring 2006 1. The Competitive Firm in the Intermediate Run . a. In the two coordinate axes below, illustrate the relationship between market supply and demand and optimizing decisions of a firm. Illustrate a situation where the firm is earning economic profits. P S S’ (b) (a) D P MC P=MR ATC Market Q Firm Q* Q b. What dynamic tends to drive profits to zero? Illustrate this dynamic in the same graph. Dynamic :___Entry causes supply to shift ou t, which drives down prices and profits 2. Finding the Competitive Price. Consider a firm with a TC function TC = 49 + 7Q + Q 2 What price would this firm charge if it was in a long run competitive equilibrium? What Profits would it earn? Why? ATC = 49/Q + 7 + Q = MC = 7 + 2Q Q = 7 Optimal Price ________P = MC = 7 + 2(7) = 21________________ Optimal Profits π = 0 _______________________________________

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## This note was uploaded on 04/12/2010 for the course ECON 303 taught by Professor Shrestha during the Fall '08 term at VCU.

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problem13S06key - Homework Problem Set#13 NEW E303 Davis...

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