Quiz8_F10_Key - increases to Q D = 1200 – 50P e In the...

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3550-Quiz 8 F10 Last Name: First Name: The demand for ream of printing papers is given by Q D = 1000-50P. Printing paper is produced in a perfectly competitive industry with constant cost. Each paper company’s short run total cost curve is given by STC=25+q 2 . a. In the long run, how many reams of papers (q) will each firm produce? Î MC=ATC MC=2q & ATC=(25/q)+q 2q=q+(25/q) q 2 =25 q=5 b. What is the price of a ream (P)? P=MC =2q P*=2*5=10 c. How many firms are in this industry? Q D = 1000-50P Q D = 1000-50*10=500 N= Q D /q=500/10=50 d. Derive a firm’s supply curve (q s ) and the market supply curve (Q s ). q S can be derived from P=MC P=2q q S =P/2 Q S =N*q S =50(P/2) =25P Due to decreases in the price of laser printer, demand for printing paper
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Unformatted text preview: increases to Q D = 1200 – 50P. e. In the short run (the number of firms does not change), what is the new market quantity (Q) and price (P)? (Hint: Use Q s from part d) Set Q S =Q D 25P=1200 – 50P 75P=1200 P*=1200/75=16 f. Under the new equilibrium price, how many reams of paper (q) will each firm produce? Also find the profit per firm. q S =P/2 =16/2=8 Profit=(P-ATC)*q=(16-11.125)*8=12.875*8=103 Note: ATC=(25/8)+8=3.125+8=11.125 g. In the long run, what will be the market quantity (Q) and price (P)? In the Long run, P=MC=ATC=10 Q D =1200-50*16=1200-800=400 h. In the long run, how many firms are in this industry? N=Q/q=400/5=80 30 new firms entered this market due to the positive profit opportunity....
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