10HW2 - Economics 104B Problem Set #2 (Due April 29) Spring...

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Economics 104B Problem Set #2 (Due April 29) Spring 2010 1. Assume a very large number of firms all have the access to the same production technology. The cost function associated with the technology is C ( q ) = 40 q - 24 q 2 + 4 q 3 . If the inverse demand function for the industry’s output is p D ( Q ) = 19 - Q , how many firms will produce in the LR competitive equilibrium. 2. A country is a producer and exporter of crude oil. Since the country is a relatively small crude-oil-producing country, its actions do not affect world prices; as an exporter, the country faces a foreign demand curve that is perfectly elastic at a price of $15 per barrel. The domestic demand curve is Q d = 26 - p where p is measured in dollars per barrel and quantity demanded Q d is measured in billions of barrels. The domestic supply curve is Q s = 10 + p . a) Assuming free trade across countries is not possible, find the country’s do- mestic competitive equilibrium. b) Assuming free trade across countries is possible, how much crude oil will be
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