2. Assume that the market for G.I. Jane dolls is perfectly competitive. The market is known to be characterized by the following demand and supply equations (not necessarily in that order): P = 90 – 0.1Q and Q =-500 + 25P All firms are known to be identical, with fixed capital cost of 10, and VC; = 20Q; + 2Q? Answer the following: a) Which is the demand (or inverse demand), which is the supply (or inverse supply)? Why? b) Calculate the equilibrium market P and Q. c) How much will each firm produce and what is the profit or loss of each firm? How many firms are there?
2. Assume that the market for G.I. Jane dolls is perfectly competitive. The market is known to be characterized by the following demand and supply equations (not necessarily in that order): P = 90 – 0.1Q and Q =-500 + 25P All firms are known to be identical, with fixed capital cost of 10, and VC; = 20Q; + 2Q? Answer the following: a) Which is the demand (or inverse demand), which is the supply (or inverse supply)? Why? b) Calculate the equilibrium market P and Q. c) How much will each firm produce and what is the profit or loss of each firm? How many firms are there?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2. Assume that the market for G.I. Jane dolls is perfectly competitive. The market is known to be characterized
by the following demand and supply equations (not necessarily in that order):
Q =-500 + 25P
P = 90 – 0.1Q
and
All firms are known to be identical, with fixed capital cost of 10, and VC; = 20Q; + 2Q?
Answer the following:
a) Which is the demand (or inverse demand), which is the supply (or inverse supply)? Why?
b) Calculate the equilibrium market P and Q.
c) How much will each firm produce and what is the profit or loss of each firm? How many firms are there?
d) Is this a short– or long-run equilibrium? Why? If it's a long-run equilibrium, stop! If it's a short-run,
continue.
e) Solve the LR equilibrium (find the market P and Q, number of firms, each firm's P and Q, profit/loss level).
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