Quiz8_F10_Key

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

This preview shows page 1. Sign up to view the full content.

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
This is the end of the preview. Sign up to access the rest of the document.

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....
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online