ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

For that we need to the conditions under which and

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Unformatted text preview: qc Case C when Qty () () Case D Need to check if Start with the FOC: () () Substitute () () This is the familiar ECO 100 result that a competitive firm produces where price equals marginal cost. The only problem is that we don’t know when case D will be a solution for sure. For that we need to the conditions under which and . From: () 45 ECO 204 Chapter 12: Practice Problems & Solutions for The Long Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. We have: () Thus: () () () This gives us a condition for case D to be a solution and for the output supplied to be between 0 and full capacity. ( ) and Intuitively, case D says that if the price of the product is between between zero and full capacity: ( ) the firm will produce an output Constant Returns Technology $ MC MR P qc Qty Optimal output anywhere between 0 and full capacity Thus, anytime () ( ) the competitive firm’s supply curve is also its MC curve: 46 ECO 204 Chapter 12: Practice Problems & Solutions for The Long Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Constant Returns Technology $ MC MR P qc Case D when () Qty () () Putting all cases together we have a competitive smelter’s supply curve: Constant Returns Technology $ Supply Curve qc Qty Put another way, the quantity supplied is: 47 ECO 204 Chapter 12: Practice Problems & Solutions for The Long Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. () () { () () () (b) Based on your answer to part (a) what is the impact on the average rational smelter’s optimal profits from, holding all else constant, a 1% increase in: The price of aluminum? Capacity? The minimum output? Fixed cost? Assume that /ton. Show all calculations. Answer...
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