# economics

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Q AC MC
1 4 12
2 8 20
3 12 28
4 16 36
5 20 44
6 24 52
7 28 60
8 32 68
9 36 76

suppose that there are 70 firms in operating in the industry. using the MC curve, find out how much output in total is delivered to the market at each price (you only need to consider prices equal to the MC values above). now assume that the market demand curve is given by p = 305 - .5Q, where p is the market price. for purposes of this problem, it is helpful to "invert" the demand curve, writing Q in terms of p. this gives Q = 610 - 2p.

a) when p = 44 the market has a) excess supply or b) excess demand equal to ? units
when p = 68, the market has a) excess supply or b) excess demand equal to ? units.

b) find the market equilibrium price, and compute output per firm and profit per firm at this price (you need only check prices corresponding to the above MC values). the equilibrium price is p = ?, output per firm is Q = ?, and profit per firm equals ?.

c) suppose that producers feel that they are not earning enough profit and, as a result, they lobby the government to institute a "price support program." they convince the government that a "fair" price for widgets is \$76. to guarantee that this price is realized, the government has to go into the market and buy output, which it then puts in a warehouse for indefinite storage. the government must buy ? units of output to reach its price target. the price support program raises profit per firm to ?.

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