Question.2994 - Homework: Problem Sets 1. The widget industry is perfectly competitive. The industry demand and supply functions for widgets are given below. Q d = 424 – 40P Q s = 40 + 8P a. What is the equilibrium price and quantity for the industry? b. If the government establishes a price floor of $9, explain what will result in terms of excess demand or supply. c. If the government establishes a price ceiling of $6, explain what will result in terms of excess demand or supply. d. Assume the supply curve shifts to Q s ’ = 34 + 12P What is the new equilibrium price and quantity? e. Assume in addition to the supply curve shifting, the demand curve shifts to Q d ’ = 484 – 38P What happens to equilibrium price and output?2. Below is a table with total data for a firm in a perfectly competitive industry.Quantity Total Cost 0 100 10 220 15 300 20 360 25 450 30 600 35 77040 960a. What is the marginal cost and average total cost for the firm at each level of output? b. If the prevailing market price is $34 per unit, how many units will be produced and sold? What are the profits per unit? What are total profits? c. Is the industry in long run equilibrium at this price? If not, what do you expect to happen to price over time?3. Jones Company operates within a monopolistically competitive industry. The estimated demand for its products is given by the following inverse demand function P = 1760 – 12Q It finance department has estimated its total cost function as TC = 24,000 + 5 Q – 15 Q 2 + 0.333 Q 3 a. What is the level of output that maximizes short run profits? Hint: Profit is maximized when MR=MC b. What is the profit maximizing price? c. What are total profits? d. What is the effect of an increase in fixed costs of $5000 on equilibrium price and output? 4. Ajax, Inc. is a monopolist. The estimated demand function for its product is Q d = 120 – 0.8P + 12Y + 4A Where Q d denotes quantity demanded, P denotes price, Y denotes personal income (in thousands of dollars), and A denotes advertising expenditures in hundreds of dollars. Ajax’s marginal cost function is given as MC = 21 + 4Q Assume Y equals 3 and A equals 3 and fixed costs equal $1000 a. What is the inverse demand function? (The equation demand equation in the form P = a – bQ d )? b. What is the profit maximizing price and quantity of output for Ajax, assuming it is an unregulated monopoly? What are its profits?c. If fixed costs increase to $1200, what will happen to equilibrium price and quantity?
Answer Below:
The xxxxxx industry xx perfectly xxxxxxxxxxx The xxxxxxxx demand xxx supply xxxxxxxxx for xxxxxxx are xxxxx below x d xxxxx P x s x a xxxx is xxx equilibrium xxxxx and xxxxxxxx for xxx industry xxx equilibrium xxxxx and xxxxxxxx can xx calculated xx simultaneously xxxxxxx the xxxxxx supply xxx demand xxxxxx for x and x - x P xx P xx P x - x If xxx government xxxxxxxxxxx a xxxxx floor xx explain xxxx will xxxxxx in xxxxx of xxxxxx demand xx supply xx - xxxxx and xx Units xxxxx will xx excess xxxxxx c xx the xxxxxxxxxx establishes x price xxxxxxx of xxxxxxx what xxxx result xx terms xx excess xxxxxx or xxxxxx Qd x units xxx Qs xxxxx There xxxx be xxxxxx demand x Assume xxx supply xxxxx shifts xx Q x rsquo x What xx the xxx equilibrium xxxxx and xxxxxxxx - x P xx P xx P x - x Assume xx addition xx the xxxxxx curve xxxxxxxx the xxxxxx curve xxxxxx to x d xxxxx ndash x What xxxxxxx to xxxxxxxxxxx price xxx output xxxxx P x Or x Or x Q xxxxx is x table xxxx total xxxx for x firm xx a xxxxxxxxx competitive xxxxxxxx Quantity xxxxx Cost xxxxxxxx Cost xxxxxxx Cost x What xx the xxxxxxxx cost xxx average xxxxx cost xxx the xxxx at xxxx level xx output x If xxx prevailing xxxxxx price xx per xxxx how xxxx units xxxx be xxxxxxxx and xxxx What xxx the xxxxxxx per xxxx What xxx total xxxxxxx Equilibrium xxxxxxxx will xx where xx MC xx MC xx when xxxxx are xxxx Revenue xxxx Total xxxxxx - xxxxxx unit x c xx the xxxxxxxx in xxxx run xxxxxxxxxxx at xxxx price xx not xxxx do xxx expect xx happen xx price xxxx time xx in xxx long xxx its xxx in xxxxxxxxxxx as xxx MC xxxxxxxxx with xxx increase xx output xx it xx expected xxxx the xxxxx would xxxxxxxx in xxx long xxx Jones xxxxxxx operates xxxxxx a xxxxxxxxxxxxxxxx competitive xxxxxxxx The xxxxxxxxx demand xxx its xxxxxxxx is xxxxx by xxx following xxxxxxx demand xxxxxxxx P xxxxx Q xx finance xxxxxxxxxx has xxxxxxxxx its xxxxx cost xxxxxxxx as xx Q xxxxx Q x a xxxx is xxx level xx output xxxx maximizes xxxxx run xxxxxxx Hint xxxxxx is xxxxxxxxx when xx - x Q xx Q xxxxx Q xx - x MR xx - x - x Q x Q- x b xxxx is xxx profit xxxxxxxxxx price xxxxx - x What xxx total xxxxxxx Revenue xxxx ndash xxxxxx - x What xx the xxxxxx of xx increase xx fixed xxxxx of xx equilibrium xxxxx and xxxxxx There xxxx be xx change xx the xxxxxxxxxxx price xxx output xx fixed xxxx do xxx have xxx effect xx marginal xxxx or xxxxxxx Ajax xxx is x monopolist xxx estimated xxxxxx function xxx its xxxxxxx is x d xxxxx P x A xxxxx Q x denotes xxxxxxxx demanded x denotes xxxxx Y xxxxxxx personal xxxxxx in xxxxxxxxx of xxxxxxx and x denotes xxxxxxxxxxx expenditures xx hundreds xx dollars xxxx rsquo x marginal xxxx function xx given xx MC x Assume x equals xxx A xxxxxx and xxxxx costs xxxxx a xxxx is xxx inverse xxxxxx function xxx equation xxxxxx equation xx the xxxx P x ndash xx d x d xxxxx P x A x - x Q x P x - x b xxxx is xxx profit xxxxxxxxxx price xxx quantity xx output xxx Ajax xxxxxxxx it xx an xxxxxxxxxxx monopoly xxxx are xxx profits xx MC x Q x Q x units x - x Revenue xx Q xx Q x TC xx Profit x c xx fixed xxxxx increase xx what xxxx happen xx equilibrium xxxxx and xxxxxxxx There xxxx be xx change xx the xxxxxxxxxxx price xxx quantity xx dependent xxxx Marginal xxxx which xx not xxxxxxxx by xxx change xx fixed xxxxMore Articles From Economics
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