PS 3.5 - Dept of Economics University of Iowa Fall 2010...

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Dept of Economics Fall 2010 University of Iowa Professor Sarah Frank 06E:001:SCB Principles of Microeconomics Optional Problem Set 3.5 (Covering chapter 9) Solutions posted later in the week 1) Suppose the market for lawn care is perfectly competitive and is in long run equilibrium. Suppose also that the long run average cost curve for a typical lawn care firm is U-shaped. An environmental movement encourages people to replace their water-guzzling lawns with native plants requiring less water, and also less care. This decreases the demand for lawn care. What will happen in the short run to the market price and quantity? What will short run quantity produced and short run profits be for a typical lawn care firm? What will happen in the long run to market price and quantity? Why? What will happen in the long run to the typical firm? 2) A new restaurant opens in town. The price of a meal is $10 and it sells 10,000 meals per year. Its total cost per year is $120,000. Of that total cost, $10,000 is fixed cost, and $110,000 is in
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PS 3.5 - Dept of Economics University of Iowa Fall 2010...

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