Problem 2. Suppose the market demand and inverse-demand for pizza in East Lansing is given by: Demand: Q1100-5P Inverse-Demand: P = 220-9d Currently, there are 100 pizza stores in the East Lansing area that produce identical pizzas and as such the market is perfectly competitive. Suppose each pizza store has identical cost function given by: C(q) = 100 +g+q², fixed-cost MC(q) = 1+2q I where C(q) is the total cost, and MC(q) is the marginal cost function. As shown in the total cost function, each pizza store incurs a $100 fixed cost which is a sunk-cost in the short-run but avoidable in the long-run. Recall that the market supply is the sum of individual firm's supply functions, and that individual's (inverse) supply curve is given by its marginal cost function i.e. Individual firm's inverse-supply: Individual firm's supply: P = mc(q) = 1 + 2q 9.0.5P-0.5 Market Supply: 2,100 9,50P-50 (a) What is the short-run equilibrium market price/quantity of pizza in East Lansing? (b) What is the firm's average cost function? [Hint: you know what the firms' total cost function. is, so how do you compute Average cost from total cost?] (e) Given the market price in a), how much would each firm produce? (d) In the SR, what is each firm's total profit or loss? [Hint: you know the market price, and know the cost functions)
Problem 2. Suppose the market demand and inverse-demand for pizza in East Lansing is given by: Demand: Q1100-5P Inverse-Demand: P = 220-9d Currently, there are 100 pizza stores in the East Lansing area that produce identical pizzas and as such the market is perfectly competitive. Suppose each pizza store has identical cost function given by: C(q) = 100 +g+q², fixed-cost MC(q) = 1+2q I where C(q) is the total cost, and MC(q) is the marginal cost function. As shown in the total cost function, each pizza store incurs a $100 fixed cost which is a sunk-cost in the short-run but avoidable in the long-run. Recall that the market supply is the sum of individual firm's supply functions, and that individual's (inverse) supply curve is given by its marginal cost function i.e. Individual firm's inverse-supply: Individual firm's supply: P = mc(q) = 1 + 2q 9.0.5P-0.5 Market Supply: 2,100 9,50P-50 (a) What is the short-run equilibrium market price/quantity of pizza in East Lansing? (b) What is the firm's average cost function? [Hint: you know what the firms' total cost function. is, so how do you compute Average cost from total cost?] (e) Given the market price in a), how much would each firm produce? (d) In the SR, what is each firm's total profit or loss? [Hint: you know the market price, and know the cost functions)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Problem 2. Suppose the market demand and inverse-demand for pizza in East Lansing is given
by:
Demand: Qd 1100-5P
220-2₁
Inverse-Demand: P = 220-
Currently, there are 100 pizza stores in the East Lansing area that produce identical pizzas and
as such the market is perfectly competitive. Suppose each pizza store has identical cost function
given by:
C(q) = 100 +g+q²,
fixed-cost
I
MC(q)=1+2q
where C(q) is the total cost, and MC(q) is the marginal cost function. As shown in the total
cost function, each pizza store incurs a $100 fixed cost which is a sunk-cost in the short-run but
avoidable in the long-run.
Recall that the market supply is the sum of individual firm's supply functions, and that
individual's (inverse) supply curve is given by its marginal cost function i.e.
Individual firm's inverse-supply: P= mc(q) = 1 + 2q
Individual firm's supply: 9,= 0.5P - 0.5
Market Supply: 2, 100q, = 50P - 50
(a) What is the short-run equilibrium market price/quantity of pizza in East Lansing?
(b) What is the firm's average cost function? [Hint: you know what the firms' total cost function
is, so how do you compute Average cost from total cost?]
(c) Given the market price in a), how much would each firm produce?
(d) In the SR, what is each firm's total profit or loss? [Hint: you know the market price, and know
the cost functions]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F28a93edb-bf40-44aa-a1c9-d4287474fd41%2F9469936b-691e-4cd2-978c-809bd2b4db9b%2Fd4s84oo_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 2. Suppose the market demand and inverse-demand for pizza in East Lansing is given
by:
Demand: Qd 1100-5P
220-2₁
Inverse-Demand: P = 220-
Currently, there are 100 pizza stores in the East Lansing area that produce identical pizzas and
as such the market is perfectly competitive. Suppose each pizza store has identical cost function
given by:
C(q) = 100 +g+q²,
fixed-cost
I
MC(q)=1+2q
where C(q) is the total cost, and MC(q) is the marginal cost function. As shown in the total
cost function, each pizza store incurs a $100 fixed cost which is a sunk-cost in the short-run but
avoidable in the long-run.
Recall that the market supply is the sum of individual firm's supply functions, and that
individual's (inverse) supply curve is given by its marginal cost function i.e.
Individual firm's inverse-supply: P= mc(q) = 1 + 2q
Individual firm's supply: 9,= 0.5P - 0.5
Market Supply: 2, 100q, = 50P - 50
(a) What is the short-run equilibrium market price/quantity of pizza in East Lansing?
(b) What is the firm's average cost function? [Hint: you know what the firms' total cost function
is, so how do you compute Average cost from total cost?]
(c) Given the market price in a), how much would each firm produce?
(d) In the SR, what is each firm's total profit or loss? [Hint: you know the market price, and know
the cost functions]
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Step 1: State the information given.
VIEWStep 2: a)Calculate short equilibrium market price and quantity of pizza.
VIEWStep 3: b)Calculate firm's average cost function.
VIEWStep 4: c) Calculate each firm's output at equilibrium price.
VIEWStep 5: d) Calculate the firm's total profit or loss in the short run.
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