HW5Spring08answer - Homework 5 (Total 20 points) Due on...

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Homework 5 (Total 20 points) Due on March 25, Tue. We go over partial equilibrium analysis with a linear inverse demand. The inverse demand function is given by p D ( q ) = 60 - q and the cost function of the representative firm is given by C ( q ) = q 2 . Q1 : Assume that the market is competitive, i.e, the representative firm behaves as a price-taker. (i) What is the inverse supply function p S ( q )? (2pt.) (ii) What are the competitive equilibrium price p CE and equilibrium quantity q CE ? (2pt.) (iii) How much is the total surplus at the competitive equilibrium? (2pt.) (iv) Suppose the government imposes a regulation that the price of the good cannot exceed 30. (a) If we obey the principle that the short-side out of demand and supply determines the quantity if they don’t match, what is the resulting price and quantity? (2pt.) (b) How much is deadweight loss due to the regulation? (2pt.) Answer : (i) The marginal cost condition p = MC ( q ) delivers the supply. Since
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HW5Spring08answer - Homework 5 (Total 20 points) Due on...

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