Homework 61 Econ 4001.03, Fall 2013 Prof. Lixin Ye Homework 6 Due Nov. 12 (Tuesday) 1. True or False, and explain briefly. 1) Suppose at the current level of output, P MC>. The firm is currently maximizing profit since it is charging a price higher than marginal cost. 2) In the long run of a perfectly competitive market, a profit maximizing firm will always make strictly positive profit. 2. Suppose a firm’s short-run total cost curve is given by 25 10 10STC Q Q=++ 1) What is the firm’s short-run supply curve? 2) How many units will the firm supply if market price is 30P =? 3. Suppose in some market that a typical firm’s short-run total cost curve is given by 210 5 15STC Q Q= ++ There are 100 identical firms in the market and all fixed costs are sunk. In addition, market demand is given by ( ) 125DP P= −. 1) Derive the equation for the typical firm’s short-run supply curve. 2) What is the short-run equilibrium market price? 3) At the price determined in part 2), how many units will the typical firm produce? 4) At the market equilibrium, do firms make positive economic profit? What will you expect to happen to the number of firms in this market over time if nothing else changes? 4. Suppose a firm’s short-run total cost curve is given by 240 64STC Q Q=++ Identify the prices that correspond to the following situations: 1) The firm earns a positive economic profit. 2) The firm earns a zero economic profit. 3) The firm continues to operate but earns a negative economic profit. 4) The firm will shut down. 5. In a certain market in the long-run, suppose the total cost function for each firm and2 potential entrant is given by 325 10 20TC Q Q Q=−+. Market demand is given by ( ) 2000 100DP P= −. 1) In equilibrium, how many units will each firm produce? 2) What is the market equilibrium price? 3) What is total market demand? 4) What is the equilibrium number of firms in the
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