Unformatted text preview: Question #3 Suppose newsprint is produced in a perfectly competitive market by many identical firms. Each firm (including potential entrants) has a total variable cost VC(q) = 40q + 0.5q 2 . Each firm’s fixed cost is equal to $50. a) Assuming that the fixed cost is entirely non-sunk (i.e. recoverable), calculate the price below which the firms will not produce any output in the short run. b) Assume that there are 12 identical firms in this industry. Currently the market demand for newsprint is Q d = 360 – 2P. What is the short-run equilibrium price? c) Assuming the same market demand as in part (b), calculate the competitive long-run equilibrium. (i) quantity produced by each firm, (ii) price, (iii) total industry demand; and, (iv) number of firms. d) If the government imposes a tax t = $5 per unit of newsprint production, how will your solutions to part (c) change?...
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This note was uploaded on 05/11/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at UBC.
- Winter '09