Problem Set 07 (ECO100) - Prof. Gustavo Indart Department...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Problem Set 7 1. A perfectly competitive industry with 100 identical firms is initially in short-run equilibrium at P = $10 and Q = 10,000 units with each firm making zero economic profit. Each firm's shut- down price is $6. a) Sketch short-run marginal cost, short-run average total cost, short-run average variable cost, and short-run average fixed cost curves for the firm consistent with the specific information above and the relationships between any firm's cost curves. Sketch the industry supply and demand curves in a separate industry diagram. b) Suppose that material costs increase so that the average total cost curve increases by exactly $2.00 per unit of output. Alter your diagrams to incorporate this effect in the short-run, clearly labelling any changed curves. Label the new short-run equilibrium price and output of the firm. Use cross-hatching to indicate the firms profit or loss. The answer to questions 2 to 5 requires a position, a clearly labelled diagram, and a brief paragraph of analysis, which justifies your position. 2.
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Problem Set 07 (ECO100) - Prof. Gustavo Indart Department...

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