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May 28, 2015

Homework Help: economics

Posted by sleepy on Wednesday, November 14, 2007 at 1:53am.

This is going to be really long, but I want to see if my answers are correct. This is problem number 10.10 in my Intermediate Microeconomics book. A perfectly competitive painted necktie industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at an output of 20 units. The minimum average cost is $10 per unit. Total market demand is given by Q=1500-50P.

a. What is the industry's long-run supply schedule?
b. What is the long-run equilibrium price? The total industry output? The output of each firm? The profits of each firm?
c. The short-run total cost curve associated with each firm's long-run equilibrium output is given by
STC=.5q^2-10q+200
where SMC=q-10. Calculate the short-run average and marginal cost curves. At what necktie output level does short-run average cost reach a minimum?
d. Calculate the short-run supply curve for each firm and the industry short-run supply curve.
e. Suppose now painted neckties become more fashionable and the market demand function shifts upward to Q=2000-50P. Using this new demand curve, answer part b for the very short run when firms cannot change their outputs.
f. In the short run, use the industry short-run supply curve to recalculate the answers to part b.
g. What is the new long-run equilibrium for the industry?

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