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Revised-ProblemSet-7-2 - (i What is Brian’s optimum...

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ARE 100A Revised Problem Set VII Winter 2010 Richard Howitt Competitive Market Equilibrium Quiz on March 5th Under normal construction conditions, the Sacramento region drywall industry has the following demand and supply functions: Demand Q D = 1500 – 50 P and Supply Q S = 180 + 23.33 P where P is measured in $/unit of 100 square feet of dry wall, and Q is measured in 1000 dry wall units (100 square feet) per month. Assume an individual drywall contractor firm Brian’s Drywall has a short run cost function of: C = 25 Q - 2 Q 2 + 0.0787 Q 3 (a) Assume that the drywall market is competitive.
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Unformatted text preview: (i) What is Brian’s optimum monthly quantity to produce ? (ii) If Brian has fixed costs of $15,000 / month. What is his net profit. Remember- Q is measured in 1000 units /month. (b) If the downturn in the construction industry shifts the industry quantity of dry wall demanded down by 20% at all prices. (i) How much should Brian adjust his production to cope with the downturn. (ii) Does Brian still make a net profit with this downturn ? (c ) For a 40% shift down from the base in quantity demanded, should Brian shut down his firm or continue to contract drywall ? 1...
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