The market for a slice of pizza in Oakland is highly competitive. The market demand for a slice of pizza can be summarized by the function: D(p) = 1200 - 200p. Consider each pizza shop to be an individual firm with the 1 same cost function C(q) = FC +q², where FC represents fixed cost of renting a space from which to sell pizza, and the variable costs reflect the cost of the labor involved in producing and selling pizza. a. In the short-run (e.g. the six months following the signing of a lease for a space from which to sell pizza) determine the quantity each pizza shop would produce for any price in the market. b. In what way does your answer to part (a) depend on the fixed cost? Explain your answer in no more than two sentences. c. Suppose initially there are 100 pizza shops selling pizza in Oakland. Derive an expression for the short-run market supply for pizza. d. Find the short-run equilibrium price and quantity in the Oakland pizza market. How does this equilibrium depend on F? Note: these quantity numbers are not meant to seem realistic. e. Give an expression for an individual pizza firm's profits in the short run. Under what circumstances does each pizza shop earn positive, negative, or 0 profits. How do pizza shop profits depend on FC? Explain. f. Is there a nonzero price low enough that the firm should decide to shutdown in the short-run? In no more than three sentences, support your answer with evidence derived from your knowledge of this firm's costs.
The market for a slice of pizza in Oakland is highly competitive. The market demand for a slice of pizza can be summarized by the function: D(p) = 1200 - 200p. Consider each pizza shop to be an individual firm with the 1 same cost function C(q) = FC +q², where FC represents fixed cost of renting a space from which to sell pizza, and the variable costs reflect the cost of the labor involved in producing and selling pizza. a. In the short-run (e.g. the six months following the signing of a lease for a space from which to sell pizza) determine the quantity each pizza shop would produce for any price in the market. b. In what way does your answer to part (a) depend on the fixed cost? Explain your answer in no more than two sentences. c. Suppose initially there are 100 pizza shops selling pizza in Oakland. Derive an expression for the short-run market supply for pizza. d. Find the short-run equilibrium price and quantity in the Oakland pizza market. How does this equilibrium depend on F? Note: these quantity numbers are not meant to seem realistic. e. Give an expression for an individual pizza firm's profits in the short run. Under what circumstances does each pizza shop earn positive, negative, or 0 profits. How do pizza shop profits depend on FC? Explain. f. Is there a nonzero price low enough that the firm should decide to shutdown in the short-run? In no more than three sentences, support your answer with evidence derived from your knowledge of this firm's costs.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![### Transcription for Educational Website
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**2. The Market for a Slice of Pizza in Oakland: A Competitive Analysis**
The market demand for a slice of pizza is represented by the function:
\[ D(p) = 1200 - 200p \]
where \( p \) is the price of a slice of pizza. Each pizza shop operates as an individual firm with the cost function:
\[ C(q) = FC + \frac{1}{2} q^2 \]
Here, \( FC \) represents the fixed cost associated with renting space for selling pizza, and the variable costs reflect the labor costs involved in production and sales.
#### Questions:
**a. Short-Run Production Decision**
In the short-run, define the quantity a pizza shop should produce following the leasing of a retail space for six months. How should production levels adjust according to market price?
**b. Dependency on Fixed Costs**
Explain how your solution to part (a) may be influenced by fixed costs. Provide a brief explanation (maximum two sentences).
**c. Market Supply with Initial Shops**
Given 100 pizza shops in Oakland, derive the market's short-run supply expression for pizza.
**d. Short-Run Equilibrium Analysis**
Determine the short-run equilibrium price and quantity in the Oakland pizza market. Analyze how this equilibrium is affected by \( FC \). Note: The numerical values for quantity are hypothetical.
**e. Profitability of an Individual Firm**
Develop an expression to calculate the short-run profits of an individual pizza shop. Discuss conditions under which profits are positive, negative, or zero, and detail the role of \( FC \) in this context.
**f. Shutdown Decision**
Is there a price below which a firm should cease operation in the short-run? Support your answer using knowledge of the firm's cost structure and explain in three sentences.
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This transcription provides a clear framework for students or readers to engage with the economic principles of a competitive market through applied questions related to costs, demand, and equilibrium.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fad5f8718-b822-43a6-888a-6d9b997f8030%2F40c096fa-be5e-462d-bdfd-7a8995897287%2Fvd7cwu_processed.png&w=3840&q=75)
Transcribed Image Text:### Transcription for Educational Website
---
**2. The Market for a Slice of Pizza in Oakland: A Competitive Analysis**
The market demand for a slice of pizza is represented by the function:
\[ D(p) = 1200 - 200p \]
where \( p \) is the price of a slice of pizza. Each pizza shop operates as an individual firm with the cost function:
\[ C(q) = FC + \frac{1}{2} q^2 \]
Here, \( FC \) represents the fixed cost associated with renting space for selling pizza, and the variable costs reflect the labor costs involved in production and sales.
#### Questions:
**a. Short-Run Production Decision**
In the short-run, define the quantity a pizza shop should produce following the leasing of a retail space for six months. How should production levels adjust according to market price?
**b. Dependency on Fixed Costs**
Explain how your solution to part (a) may be influenced by fixed costs. Provide a brief explanation (maximum two sentences).
**c. Market Supply with Initial Shops**
Given 100 pizza shops in Oakland, derive the market's short-run supply expression for pizza.
**d. Short-Run Equilibrium Analysis**
Determine the short-run equilibrium price and quantity in the Oakland pizza market. Analyze how this equilibrium is affected by \( FC \). Note: The numerical values for quantity are hypothetical.
**e. Profitability of an Individual Firm**
Develop an expression to calculate the short-run profits of an individual pizza shop. Discuss conditions under which profits are positive, negative, or zero, and detail the role of \( FC \) in this context.
**f. Shutdown Decision**
Is there a price below which a firm should cease operation in the short-run? Support your answer using knowledge of the firm's cost structure and explain in three sentences.
---
This transcription provides a clear framework for students or readers to engage with the economic principles of a competitive market through applied questions related to costs, demand, and equilibrium.
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Step 1: State the given information
VIEWStep 2: a) Determine the quantity each pizza shop would produce for any price in the market
VIEWStep 3: b) Discuss whether answer in part (a) depends on FC
VIEWStep 4: c) Derive an expression for the short-run market supply
VIEWStep 5: d) Find the short-run equilibrium price and quantity
VIEWStep 6: e) Compute the short run profit function for individual firm
VIEWStep 7: f) Ascertain whether there is a nonzero price low enough to shutdown in short run
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