The market for GIFs in Artsville, Mars is highly competitive. A large number of firms produce GIFS and there are no barriers for entry of new firms. All firms producing GIFs have the same technology. Let y be the number of GIFs produced (measured in thousands). Each firm has total cost function tc(y) = y² + 1, average cost function ac(y) = y + 1/y, and marginal cost function mc(y) = 2y, for y > 0 and tc(0) = ac(0) = 0. a) Complete the table. Output (y) tc(y) ac(y) mc(y) 0.25 0.50 0.75 $2.08 ($25/16) $2.33 ($7/3) $1.50 ($3/2) 1.00 1.25 1.50 b) If the price for GIFs is $2.50, what is the profit-maximizing amount of output for any given firm? c) In the long run, firms will exit the market if making negative profits. In the long run, what is the smallest price for GIFS at which a positive number of GIFs is sold? d) When prices are above the value found in part b), what is the supply curve for an individual firm? [It is, of course, a function of the price of GIFs] e) If there are N firms in the GIFS market, what is the industry supply curve? Suppose the demand for GIFs is given by D(p) = 52-p, where p is the price of GIFs. f) What is the long-run equilibrium number of firms in the GIFS market? [Hint: Firms will enter the market if profits are positive and exit if profits are negative.] g) How much output is produced by each firm in this long-run equilibrium?
The market for GIFs in Artsville, Mars is highly competitive. A large number of firms produce GIFS and there are no barriers for entry of new firms. All firms producing GIFs have the same technology. Let y be the number of GIFs produced (measured in thousands). Each firm has total cost function tc(y) = y² + 1, average cost function ac(y) = y + 1/y, and marginal cost function mc(y) = 2y, for y > 0 and tc(0) = ac(0) = 0. a) Complete the table. Output (y) tc(y) ac(y) mc(y) 0.25 0.50 0.75 $2.08 ($25/16) $2.33 ($7/3) $1.50 ($3/2) 1.00 1.25 1.50 b) If the price for GIFs is $2.50, what is the profit-maximizing amount of output for any given firm? c) In the long run, firms will exit the market if making negative profits. In the long run, what is the smallest price for GIFS at which a positive number of GIFs is sold? d) When prices are above the value found in part b), what is the supply curve for an individual firm? [It is, of course, a function of the price of GIFs] e) If there are N firms in the GIFS market, what is the industry supply curve? Suppose the demand for GIFs is given by D(p) = 52-p, where p is the price of GIFs. f) What is the long-run equilibrium number of firms in the GIFS market? [Hint: Firms will enter the market if profits are positive and exit if profits are negative.] g) How much output is produced by each firm in this long-run equilibrium?
Chapter1: Making Economics Decisions
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![The market for GIFs in Artsville, Mars is highly competitive. A large number of firms produce
GIFS and there are no barriers for entry of new firms.
All firms producing GIFs have the same technology. Let y be the number of GIFs produced
(measured in thousands). Each firm has total cost function tc(y) = y² + 1, average cost
function ac(y) = y + 1/y, and marginal cost function mc(y) = 2y, for y > 0 and
tc(0) = ac(0) = 0.
a) Complete the table.
Output (y)
tc(y)
ac(y)
mc(y)
0.25
0.50
0.75
$2.08 ($25/16)
$2.33 ($7/3)
$1.50 ($3/2)
1.00
1.25
1.50
b) If the price for GIFs is $2.50, what is the profit-maximizing amount of output for any
given firm?
c) In the long run, firms will exit the market if making negative profits. In the long run,
what is the smallest price for GIFS at which a positive number of GIFs is sold?
d) When prices are above the value found in part b), what is the supply curve for an
individual firm? [It is, of course, a function of the price of GIFs]
e) If there are N firms in the GIFS market, what is the industry supply curve?
Suppose the demand for GIFs is given by D(p) = 52-p, where p is the price of GIFs.
f) What is the long-run equilibrium number of firms in the GIFS market? [Hint: Firms
will enter the market if profits are positive and exit if profits are negative.]
g) How much output is produced by each firm in this long-run equilibrium?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F791bab4a-f22a-46b8-af34-6dd711d05b7e%2F39973bbe-8b9e-4070-8a13-aa7bc942e7d4%2F7rl0lbo_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The market for GIFs in Artsville, Mars is highly competitive. A large number of firms produce
GIFS and there are no barriers for entry of new firms.
All firms producing GIFs have the same technology. Let y be the number of GIFs produced
(measured in thousands). Each firm has total cost function tc(y) = y² + 1, average cost
function ac(y) = y + 1/y, and marginal cost function mc(y) = 2y, for y > 0 and
tc(0) = ac(0) = 0.
a) Complete the table.
Output (y)
tc(y)
ac(y)
mc(y)
0.25
0.50
0.75
$2.08 ($25/16)
$2.33 ($7/3)
$1.50 ($3/2)
1.00
1.25
1.50
b) If the price for GIFs is $2.50, what is the profit-maximizing amount of output for any
given firm?
c) In the long run, firms will exit the market if making negative profits. In the long run,
what is the smallest price for GIFS at which a positive number of GIFs is sold?
d) When prices are above the value found in part b), what is the supply curve for an
individual firm? [It is, of course, a function of the price of GIFs]
e) If there are N firms in the GIFS market, what is the industry supply curve?
Suppose the demand for GIFs is given by D(p) = 52-p, where p is the price of GIFs.
f) What is the long-run equilibrium number of firms in the GIFS market? [Hint: Firms
will enter the market if profits are positive and exit if profits are negative.]
g) How much output is produced by each firm in this long-run equilibrium?
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