ps4v3q - PROBLEM SET 4 VERSION 3 Economics 201 Geoffrey...

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Unformatted text preview: PROBLEM SET 4 VERSION 3 Economics 201 Geoffrey Jehle Present all final answers neatly on these pages—please do your scratch work somewhere else. Remember to attribute help received. 1. Each firm in a perfectly competitive industry has total cost function TC = 400 q 2 + 1 , and marginal costs MC = 800 q. Market demand facing this industry is Q d = (100- p ) 7 150 , where p is market price. Warning! Do not approximate or convert to decimal form until your final answer! a. What are the long-run equilibrium market price and number of firms in this industry? Long-run equilibrium price = Equilibrium number of firms = b. The government decides to impose a per-unit (excise) tax of t = $345 / 14 on every firm in the industry. Comparing the initial long-run equilibrium in (a) with the new post-tax short-run equilibrium that would arise in this market, measure the impact of this tax on consumer welfare, producer welfare and the deadweight loss in the short run. (Careful with your signs.) Change in consumer surplus = Change in producer surplus = Deadweight loss (absolute value) = 2 2. Market demand is Q d = 100- p , and supply is Q s = p . Draw these on the grid below....
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This note was uploaded on 04/26/2010 for the course ECON 101 taught by Professor Staff during the Spring '08 term at Vassar.

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ps4v3q - PROBLEM SET 4 VERSION 3 Economics 201 Geoffrey...

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