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18. Suppose that the restaurant industry is perfectly competitive. All producers have identical cost curves, and the industry is currently in long-run equilibrium, with each producer producing at its minimum long-run average total cost of $8. 1.If there is a sudden increase in demand for restaurant meals, what will happen to the price of restaurant 2.meals? How will individual firms respond to the change in price? Will there be entry into or exit from the 3.industry? Explain. 4.In the market as a whole, will the change in the equilibrium quantity be greater in the short run or the 5.long run? Explain. 6.Will the change in output on the part of individual firms be greater in the short run or the long run? 7.Explain and reconcile your answer with your answer to part (b).
19. Suppose that the market for eggs is initially in long-run equilibrium. One day, enterprising and profit-hungry egg farmer Atkins has the inspiration to fit his laying hens with rose-colored contact lenses. His inspiration is true genius — overnight his egg production rises and his costs fall. 1.Will farmer Atkins be able to leverage his inspiration into greater profit in the short run? Why? 2.Farmer Atkin’s right-hand man, Abner, accidentally leaks news of the boss’ inspiration at the local bar and grill. The next thing Farmer Atkins knows, he’s being interviewed by Brian Williams for the NBC evening news. What short-run adjustments do you expect competing egg farmers to make as a result of this broadcast? What will happen to the profits of egg farms? 3.In the long run, what will happen to the price of eggs? What will happen to the profits of egg producers (including those of Farmer Atkins)? 4.Explain how, in the long run, competition coupled with the quest for profits ends up making producers better off only for a little while, but consumers better off forever.
20. Assume that the ice cream industry is perfectly competitive. Each firm producing ice cream must hire an operations manager. There are only 50 operations managers that display extraordinary talent for produc- ing ice cream; there is a potentially unlimited supply of operations managers with average talent. Opera- tions managers are all paid $200,000 per year. •The long-run total cost (in thousands of dollars) faced by firms that hire operations managers with exceptional talent is given by LTCE = 200 + Q2, where Q is measured in thousands of gallon tubs of ice cream. The corresponding marginal cost function is given by LMCE = 2Q, and the corresponding long-run average total cost is LATCE = 200/Q + •The long-run total cost faced by firms that hire operations managers with average talent is given by LTCA = 200 + 2Q2. The associated marginal cost function is given by LMCA = 4Q, and the correspond- ing long-run average total cost is LATCA = 200/Q + 21.Derive the firm supply curve for ice cream producers with extraordinary operations managers. 2.Derive the firm supply curve for ice cream producers with average operations managers. 3.The minimum LATCA (for firms with average operations managers) is $40, achieved when those firms 4.produce 10 units of output. The minimum LATCE (for firms with exceptional operations managers) is $28.28, achieved when those firms produce 14 units of output. Explain why, given only that informa- tion, it is not possible to determine the long-run equilibrium price of 5-gallon tubs of ice cream. 5.Referring to part (c), suppose that you know that the market demand for ice cream is given by Q. Q.