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Assignment 5 ECON2310 Fall 2011-1

# Assignment 5 ECON2310 Fall 2011-1 - ECON2310(Martin Goertz...

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ECON2310 (Martin, Goertz, and Adomait) Fall 2011 ASSIGNMENT 5 for weeks 7 and 8 consists of two long problem on chapters 7-9, 14, and 15 to be discussed in labs. Quizzes occur in week 9, November 7-11. This problems ties together the material in chapters 7-9 (production, cost, profit maximization), and 14 (perfect competition) -15 (government interventions in competitive markets), which together form the benchmark for the study of markets. 1) Suppose that demand in a competitive market is given by Q = 80 - 4P. Each competitive firm has sunk fixed costs of 16 and variable costs of q 2 . Marginal costs are MC = 2q. A lowercase “q” refers to the output of a firm while an uppercase “Q” refers to market output. A) Find the expression for short-run average costs. B) What is the minimum point of the short-run average cost curve? C) Assuming that the minimum point of firm’s short-run average cost curve is also the minimum point of the long-run average cost curve , what is the long-run equilibrium price? D) What is long run equilibrium output? E) How many firms are there in the long-run equilibrium? F) What is the short run market supply curve? ( Answer: P = (1/6)Q - show this ) G) Assuming a “constant” cost industry what is the long run market supply curve? Explain. H) What is producer surplus, consumer surplus, and aggregate surplus in the short run? I) Now let demand increase to Q = 120 - 4P. What is the new equilibrium price in the short run?

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Assignment 5 ECON2310 Fall 2011-1 - ECON2310(Martin Goertz...

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