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ps8 - d What is the lowest price at which this brewery...

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UNIVERSITY OF WISCONSIN Economics 101 – Fall 2005 Wei Zhang Problem Set 8 Due By November 14, 2005 (in class) Perfect Competition (Chapter 14) 1) A local microbrewery has total costs of production given by the equation TC=50+10Q+5Q 2 . This implies that the firm's marginal cost is given by the equation MC = 10 + 10Q (you do not need to be able to show this). a. Write the equations showing the brewery's average total cost and average variable cost, each as a function of Q. b. Show the firm's MC, ATC and AVC on one graph. c. Assuming the beer industry is perfectly competitive, what output would be produced by the firm in long-run equilibrium? What would be the long-run equilibrium price?
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Unformatted text preview: d. What is the lowest price at which this brewery would be willing to produce in the short run? Explain. e. If the beer industry is perfectly competitive and consists of n identical breweries, each with costs functions as above, give an equation for the industry supply curve. f. If the market demand for beer is given by the equation Q D =105-(1/4)*P, how many firms will be in the industry in long-run equilibrium? (Hint: You already know the long-run equilibrium price from part c!) g. Based on your knowledge of the real world, make an argument that the beer industry is not perfectly competitive. Which assumptions of the perfect competition model seem to be violated?...
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