Product A is sold in a perfectly competitive, constant-cost industry. a. Draw a side-by-side graph for product A showing the market in long-run equilibrium with an individual firm earning normal profit. Label each of the following: i. The market's equilibrium price (PE) and quantity (QE) ii. The firm's profit-maximizing quantity (QE) b. How would it affect the quantity demanded if the government imposed a price floor below PE? c. The price of B, a complement for product A, decreases. Illustrate on your graph from part (a) the result of this in the short run. i. Label the new market price (P2) and new market quantity (Q2). ii. Shade completely any profit or loss for the firm. d. The price of B decreased by 10 percent, while the quantity demanded of A changed by 15 percent. What is the cross-price elasticity of A and B? e. What happens to the productive efficiency of the firm in the short run as a result of the change described in part (c)? f. What will happen to the price of A in the long run? Explain. g. In long-run equilibrium, the individual firm produces 50 units of A. At that level of output, its total cost is $200. What must be the market price? h. The whole market from part (g) clears at a quantity of 2,000 units in the long run. If the constant long-run supply would intersect the y-axis at $3 and the demand curve intersects the y-axis at $5, what is the consumer surplus?
Product A is sold in a perfectly competitive, constant-cost industry. a. Draw a side-by-side graph for product A showing the market in long-run equilibrium with an individual firm earning normal profit. Label each of the following: i. The market's equilibrium price (PE) and quantity (QE) ii. The firm's profit-maximizing quantity (QE) b. How would it affect the quantity demanded if the government imposed a price floor below PE? c. The price of B, a complement for product A, decreases. Illustrate on your graph from part (a) the result of this in the short run. i. Label the new market price (P2) and new market quantity (Q2). ii. Shade completely any profit or loss for the firm. d. The price of B decreased by 10 percent, while the quantity demanded of A changed by 15 percent. What is the cross-price elasticity of A and B? e. What happens to the productive efficiency of the firm in the short run as a result of the change described in part (c)? f. What will happen to the price of A in the long run? Explain. g. In long-run equilibrium, the individual firm produces 50 units of A. At that level of output, its total cost is $200. What must be the market price? h. The whole market from part (g) clears at a quantity of 2,000 units in the long run. If the constant long-run supply would intersect the y-axis at $3 and the demand curve intersects the y-axis at $5, what is the consumer surplus?
Chapter6: Systems Of Equations And Inequalities
Section: Chapter Questions
Problem 21T: A manufacturer produces two models of television stands. The table at the left shows the times (in...
Related questions
Question
Transcribed Image Text:Product A is sold in a perfectly competitive, constant-cost industry.
a. Draw a side-by-side graph for product A showing the market in long-run equilibrium with an individual firm earning normal profit. Label each of the following:
i. The market's equilibrium price (PE) and quantity (QE)
ii. The firm's profit-maximizing quantity (QE)
b. How would it affect the quantity demanded if the government imposed a price floor below PE?
c. The price of B, a complement for product A, decreases. Illustrate on your graph from part (a) the result of this in the short run.
i. Label the new market price (P2) and new market quantity (Q2).
ii. Shade completely any profit or loss for the firm.
d. The price of B decreased by 10 percent, while the quantity demanded of A changed by 15 percent. What is the cross-price elasticity of A and B?
e. What happens to the productive efficiency of the firm in the short run as a result of the change described in part (c)?
f. What will happen to the price of A in the long run? Explain.
g. In long-run equilibrium, the individual firm produces 50 units of A. At that level of output, its total cost is $200. What must be the market price?
h. The whole market from part (g) clears at a quantity of 2,000 units in the long run. If the constant long-run supply would intersect the y-axis at $3 and the demand curve intersects the y-axis at $5, what is the consumer surplus?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Algebra & Trigonometry with Analytic Geometry
Algebra
ISBN:
9781133382119
Author:
Swokowski
Publisher:
Cengage
Algebra & Trigonometry with Analytic Geometry
Algebra
ISBN:
9781133382119
Author:
Swokowski
Publisher:
Cengage