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# hw 7 - HOMEWORK 7 DUE AT START OF CLASS WEDNESDAY FEBRUARY...

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Unformatted text preview: HOMEWORK 7 DUE AT START OF CLASS WEDNESDAY, FEBRUARY 2 1. Suppose a firm plans to produce q* (in the ﬁgure below) units per month for the foreseeable future and builds the plant that produces (1* per month most efficiently. In the figure below, draw and label plausible examples of the following cost curves. a. Short—run average total cost (SRATC) for the plant that is built. b. Short-run marginal cost (SRMC) for the plant that is built. 0. Long-run marginal cost (LRMC). Your ﬁgure must correctly represent the necessary relationships between the various curves, including the long—run average cost (LRAC), and it must do so in a way that is clear to anyone looking at the ﬁgure. 4* q 2. Suppose a firm plans to produce q* (in the figure below) units per month for the foreseeable future and builds the plant that produces q* per month most efficiently. In the figure below, draw and label plausible examples of the following cost curves. a. Short—run average total cost (SRATC) for the plant that is built. b. Short-run marginal cost (SRMC) for the plant that is built. 6. Long-run marginal cost (LRMC). Your figure must correctly represent the necessary relationships between the various curves, including the long-run average cost (LRAC), and it must do so in a way that is clear to anyone looking at the figure. ,1 l 1 l g : 3. According to Besanko and Braeutigam, what properties characterize perfectly competitive markets and what are the implications of those characteristics? 4. Firm 1 uses LI and XI to produce output Q1 according to the production function Q1 : (L11?l )025 . Firm 2 uses L2 and K2 to produce output Q2 according to the production function ”3 Qz = (Lsz) ' If total resources L” = l for labor and K * = 1 for capital are available to divide between the firms, how much output could be produced by firm 2 if firm 1 were required to produce Q: with 0 s Q; s 1 [so that Q: is possible given L“ = 1 and K“ = 1]. READING ASSIGNMENT for Wednesday, February 2'“jl Part of text Chapter 9 Perfect Competition: pages 306 — 7 Supply by a firm: pages 307 — 19 Producer’s Surplus: pages 345 - 8 ...
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