00 provide a labelled isoquant diagram showing the

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at a competitive price p = 4.00. Provide a labelled isoquant diagram showing the substitution and output effects that would occur if w’ = 1.00. A: KL = q 4 , 4K = L, K = 0.5q 2 , L = 2q 2 , C = q 2 , MC = 2q, q = 2, K = 2, L = 8, C = 4 B: q = 2, KL = 16, K = L, K = 4, L = 4, C = 8 C: KL = q 4 , K = L, K = q 2 , L = q 2 , C = 2q 2 , MC = 4q, q = 1, K = 1, L = 1, C = 2 16 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 8 0 1 2 3 4 5 6 7 labour capital 1 2 A B C
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SURNAME, Name: __________________________ Number: ______________________ 9. [3 Marks] Milk producers operate under the rules of Perfect Competition. All firms have total costs C = q 2 − nq + 25. This is a Decreasing Cost Industry. Market demand is Q = 18 − P . The Government of Ontario levies a subsidy of $4.00 per litre of milk. Provide the usual pair of fully labelled diagrams showing “The Firm” and “The Industry” along with supplementary calculations to illustrate and quantify the response A , B and C to this per-unit subsidy. q0 = 5: p = 10 – n, Q = 5n, Q = 18 – p, n0 = 2, p0 = 8, Q0 = 10, mc0 = 2q – 2, S0 = p + 2 mc1 = 2q – 2 – 4, S1 = p + 6, p1 = 6, q1 = 6, Q1 = 12 q2 = 5, p = 6 – n, Q = 5n, Q = 18 – p, n2 = 3, p2 = 3, Q2 = 15 8 0 1 2 3 4 5 6 7 12 0 1 2 3 4 5 6 7 8 9 10 11 quantity price MC0 AC0 MC1 MC2 AC2 p0 p1 p2 18 0 2 4 6 8 10 12 14 16 12 0 1 2 3 4 5 6 7 8 9 10 11 X Axis price S0 = P + 2 S1 = P + 6 S2
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SURNAME, Name: __________________________ Number: ______________________ Solutions 100 increasing 64 14 32 18 π = 400x 1/2 – 50x has maximum at x = 16, y = 16, π = 800 so Iso-profit line is y = 8 + 0.5x π = 400x 1/2 – 40x has maximum at x = 25, y = 20, π = 1000 so Iso-profit line is y = 10 + 0.4x A: KL = q 4 , 4K = L, K = 0.5q 2 , L = 2q 2 , C = q 2 , MC = 2q, q = 2, K = 2, L = 8, C = 4 B: q = 2, KL = 16, K = L, K = 4, L = 4, C = 8 C: KL = q 4 , K = L, K = q 2 , L = q 2 , C = 2q 2 , MC = 4q, q = 1, K = 1, L = 1, C = 2 q0 = 5: p = 10 – n, Q = 5n, Q = 18 – p, n0 = 2, p0 = 8, Q0 = 10, mc0 = 2q – 2, S0 = p + 2 mc1 = 2q – 2 – 4, S1 = p + 6, p1 = 6, q1 = 6, Q1 = 12 q2 = 5, p = 6 – n, Q = 5n, Q = 18 – p, n2 = 3, p2 = 3, Q2 = 15 16 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 8 0 1 2 3 4 5 6 7 labour capital 1 2 A B C 8 0 1 2 3 4 5 6 7 12 0 1 2 3 4 5 6 7 8 9 10 11 quantity price MC0 AC0 MC1 MC2 AC2 p0 p1 p2 18 0 2 4 6 8 10 12 14 16 12 0 1 2 3 4 5 6 7 8 9 10 11 X Axis price S0 = P + 2 S1 = P + 6 S2
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  • Summer '15
  • RobertBarber
  • Economics, π, University of Toronto Mississauga

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