Section+Exercise+9+solns - 2011 ,Berkeley Doraiswamy Spring...

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Department of Economics               Spring  2011 University of California, Berkeley         Economics 1    Head GSI: Swetha  Doraiswamy Section Exercise 9 SPRING 2007, MIDTERM 1 1) Construction companies build, repair, and remodel homes. Suppose construction is a  perfectly competitive  industry and construction companies wish to maximize profit . a. “Initially, construction companies are in long-run competitive equilibrium . Draw graphs   below that show the market for construction and the typical company in long-run   competitive equilibrium .   Label  all your curves with the subscript “1.”   1. What economic concept does this question ask me about?  Long-run competitive equilibrium 2. What does this question ask me to do? Draw and properly label graphs for (a) the market for construction and (b) a  typical construction firm. 3. What does this question tell me about the market for construction? The market is in long-run competitive equilibrium . 4. What do I do with that information? What are all the curves in the market? For the firm? What do they look like in  long-run competitive equilibrium? What are important points to label? Label  all axes and curves. b. “A natural disaster destroys  or damages thousands of homes. What is the short-run effect   on the price of construction ? On the profit  of the typical construction company? On the  graphs above, show these effects . Label  all your curves with the subscript “2.” 1. What economic concept(s) does this question ask me about?  The short run, demand, and profit. 2. What does this question ask me to do? Show the short-run effect of the disaster on market price and firm profit on the        Page  1  of  5
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Department of Economics               Spring  2011 University of California, Berkeley         Economics 1    Head GSI: Swetha  Doraiswamy graphs, and label your curves. 3.
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This note was uploaded on 04/26/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at Berkeley.

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Section+Exercise+9+solns - 2011 ,Berkeley Doraiswamy Spring...

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