Chapter%207%20Practice%20B - Chapter 7 Practice B 1 The...

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Chapter 7 Practice B 1. The Denton Family Restaurant produces hamburgers in a competitive market. The current market price of hamburgers if $6, the firm sells 1000 hamburgers per month, and is making $0 in profit. Their cost curves have the usual U-shapes, and all firms are identical. a. Graph these cost curves and then describe their hamburger supply function in as much detail as possible. (that is, explain why the q s is what it is, from a price of $0 to a price of $10; at least identify and describe key features of supply as the price rises) b. Now assume a $2 excise tax is imposed on hamburgers. Explain the effect of this tax on the firm and the hamburger market in the short run and the long run. c. Now assume that instead of the tax in part “b” above, the city levies a $2000 monthly tax on restaurants. The tax has been assessed on their restaurant and cannot be avoided for one year. What effect will this have on the firm and on the market for hamburgers? 2. Basketballs are produced in a competitive industry where all firms are identical (same exact technology and cost curves). The firm’s costs are illustrated below, as well as market demand for the industry.
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