2. Consider a perfectly competitive market at a long-run equilibrium. The industry has 100 firms that sell 100 units each at a price of $20. (a) Illustrate both the entire market (supply/demand diagram) and the individual firm (cost/revenue diagram) at long-run equilibrium. (b) Suppose a decrease in consumer demand occurs, which reduces the total quantity sold on the market by 1000 units. Illustrate the effect this decrease in demand would have on both the market and the individual firm, showing also the response of supply. (c) Suppose the market now supplies 3000 units. How many firms exited the market?
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- er 11 i Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be Multiple Choice OO O the same as the initial equilibrium price, but the new industry output will be greater than the original output. greater than the initial price, and the new industry output will be greater than the original output. less than the initial price, but the new industry output will be greater than the original output. the same as the initial equilibrium price, and the industry output will remain unchanged. 23 11,229 X OCT all Z A4. Suppose that each firm in a competitive industry has the following costs: Total cost: TC = 50 +÷q? Marginal cost: MC = q; where q is an individual firm's quantity produced. The market demand curve for this product is Demand: Demand: QD = 120 – P , where P is the price and Q is the total quantity of the good in the market. Currently, there are 9 firms in the market. In each following question, please explain how you find the answer! 4.1 What is the equilibrium price and quantity for this market in the short run? 4.2 In this equilibrium, how much does cach firm produce? Calculate cach firm's profit or loss. Is there incentive for firms to enter or exit? 4.3 In the long run with free entry and exit, what is the equilibrium price and quantity in this market? 4.4 In this long-run equilibrium, how much does each firm produce? How many firms are in the market?Suppose that bicycles are produced by a perfectly competitive, constant-cost industryWhich of the following will have a larger effect the long-run price of bicycles: a government program to advertise the health benefits of bicyclingor (2) a government program increases the demand for steel, an input in the manufacture of bicycles that is produced in an increasing cost industry ? O. Option 1: shifts the demand curve out and increases the price. O. Option 2: shifts the supply curve up and increases the price O. Option 2: it shifts the demand curve up and increases the quantity. O. Option 2: shifts the supply curve up and increases the quantity.
- Now consider any perfectly competitive market and suppose there are 'n' firms in the market in the long-run initially, but then the product becomes super-trendy and demand doubles. How many (new) firms enter the market? Whydon’t you need to know the cost and demand curves?Suppose the market for fresh pork is a competitive market. Initially, it is operatingat its long-run competitive equilibrium at a market price of $50.Owing to the spread of COVID-19, many people turn to buying frozen meat oncea week rather than fresh pork every day. As a result, the market price of fresh porkreduces to $30.a. With the aid of a pair of market-and-firm diagrams, illustrate how thiswould affect the equilibrium price and quantity in the fresh pork market andthe output of a typical butcher of fresh pork in the short-run.b. Suppose, for the situation in (a), the average cost of a typical butcher offresh pork is $40, which includes $15 on buying meat from suppliers, $12on paying rent, $8 on paying hourly wages on staff, and $5 on other costs.Explain whether a typical butcher should shut down in the short run.3. Suppose that each firm in a competitive industry has the following costs: Total Cost: TC = 50+ ¹/29² Marginal Cost: MC = q where q is an individual firm's quantity produced. The market demand curve for this product is Demand: QD = 120 - P where P is the price and Q is the total quantity of the good. Currently, there are 9 firms in the market. What is each firm's fixed cost? What is its variable cost? Give the equation for a b (C) At q=10, the average-total-cost and average total cost at that quante e) f) long run supply curve. d) Give the equation for the market supply curve for the short run in which the number of firms is fixed. What is the equilibrium price and quantity for this market in the short run? In this equilibrium, how much does each firm produce? Calculate each firm's profit or loss. Do firms have an incentive to enter or exit? 8 In the long run with free entry and exit, what is fequilibrium pric
- The following graph of long-run changes in a competitive market indicate that it is exhibiting Price ($) 10 9 8 7 6 5 4 3 2 1 0 0 Constant returns to scale 1 O External diseconomies of scale 2 ONeither economies nor diseconomies of scale The law of increasing marginal returns O Internal economies of scale of the firms 3 O Internal diseconomies of scale of the firms 4 5 сл D 6 51 52 53 7 8 D₂ 9 D3 10 Quantity3. Consider the perfectly competitive markets for bottled water in two cities, A and B. Both have a downward-sloping demand curve and upward-sloping supply curve, and each market is currently in long run equilibrium at the same price. The demand curves are similar, but in city A the supply curve is more price elastic than in city B. a) There's a shock: an accident causes the tap water in the area to become undrinkable. In two diagrams, one for each city, compare the effect on price and quantity traded in the two cities, assuming that a new equilibrium is reached. Explain your diagrams. b) Following on from your answer to a), explain what would happen in the model to the number of suppliers and their profitability, in each of the short run and the long run.12. a) Given a typical firm in a perfectly competitive market show the firm's optimal choice alongside the market equilibrium, and briefly explain why both consumer and producer surplus are maximised in this case. b) A profit-maximising firm faces a downward-sloping demand curve for its output and has marginal costs that inerease with output. Show, on a single diagram, how its profit maximisation decision can be represented both in terms of marginal revenue and marginal cost, and a feasible set optimisation. c) Explain and identify on a diagram the dead weight loss that arises in b) above and thereby compare the equilibrium in b) with the eqilibrium found in a) above in terms of Pareto efficiency. d) Assume an initial equilibrium in which the typical firm in a perfectly competitive industry is earning excess profits. Explain how this excess profit will be reduced to normal profit. You should illustrate your answer with a diagram.
- 5J 8. Short-run and long-run effects of a shift in demand Suppose that the tempeh industry is initially operating in long-run equilibrium at a price level of $5 per pound of tempeh and quantity of 250 million pounds per year. Suppose a top medical journal publishes research that animal-alternative protein sources such as tempeh could increase your expected lifespan by 6 years. The publication is expected to cause consumers to demand Shift the demand curve, the supply curve, or both on the following graph to illustrate these short-run effects of the publication. PRICE (Dollars per pound) 10 9 8 7 9 5 4 3 2 1 0 0 50 100 Supply In the long run, some firms will respond by Demand 150 200 250 300 350 400 450 500 QUANTITY (Millions of pounds) tempeh at every price. In the short run, firms will respond by Demand Supply until Shift the demand curve, the supply curve, or both on the following graph to illustrate both the short-run effects of the publication and the new long- run equilibrium after…7. Short-run supply and long-run equilibrium Consider the competitive market for titanium. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph. T2 B4 ATC 40 AVC 16 4 12 16 20 24 28 32 36 40 QUANTITY (Thousenda of pounds) Use the prange polots (square symbol) to plot the initial short-run industry supply curve when there pre 10 firms in the market. (Hint: You can disregard the portion of the supply curve that comesponds to prices where there is no cutput since this is the industry supply curve.) Next, use the purple points (diamand symbol) to plat the short-run industry supply curve when there are 20 frms. Finally, use the green points (triangle symbal) to piot the short-run industry supply curve when there are 30 firms. (? 72 Supply (10 fima) Demand Supply (20 fims) 32 Supply (30 fims) * 24 16 120 240 2o 490…