Consider the following demand schedule in the market: P Q 0 0 0.1 100 0.2 200 0.3 300 0.4 400 0.5 500 0.6 600 0.7 700 0.8 800 0.9 900 1 1000 a. If the price is 0.20, what is the number of firms in the market? b. Are they making profit? What will happen in the LR? c. If the price is 0.50, what is the number of firms in the market? d. What will happen in the LR?

Suppose that the development of a new drought-resistant hybrid seed corn leads to a 50 percent increase in the average yield per acre without increasing the cost to the farmers who use the new technology. If the producers in the corn production industry were price takers, what would happen to the following? a. the price of corn b. the profitability of corn farmers who quickly adopt the new technology c. the profitability of corn farmers who are slow to adopt the new technology d. the price of soybeans, a substitute product for corn

A firm in a perfectly competitive industry has patented a newprocess for making widgets. The new process lowers the firm’saverage cost, meaning that this firm alone (although still aprice taker) can earn real economic profits in the long run. a. If the market price is $20 per widget and the firm’s marginalcost is given by MC=0.4q , where q is the dailywidget production for the firm, how many widgets willthe firm produce? b. Suppose a government study has found that the firm’snew process is polluting the air and estimates the socialmarginal cost of widget production by this firm to be. If the market price is still $20, what is thesocially optimal level of production for the firm? Whatshould be the rate of a government-imposed excise tax tobring about this optimal level of production? c. Graph your results.