Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 9.A, Problem 5P
To determine
The demand and supply in the long run.
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Table 3 given in the following page describes the long run cost schedules for a typical firm in a given
industry operating under perfect competition and without positive or negative external economies.
Table 4 gives the demand schedule for the product of this industry.
a) Fill out the missing entries in the table
b) Plot the long run average total cost and marginal cost curves for the typical firm. Plot the supply
curve for the typical firm on a second diagram. Plot the demand schedule for the whole industry
on a third diagram.
c) Currently the number of firms in the industry is 16. They all enjoy the same cost schedules given
in Table 3. What is the equilibrium price? (Hint construct the market supply curve and plot it on the
same diagram as the demand curve)
d) What will happen to the number of firms in the long run? What are the basic economic forces and
the characteristics of competitive markets that justify your answer?
e) What is the long run equilibrium price and long run…
The first graph depicts the industry supply and demand for yoga classes. Assume that the market is initially in equilibrium
at the intersection of lines D and S.
The second graph is the cost information for a single firm in this perfectly competitive industry.
Assume there is an increase in the industry demand for yoga classes and the industry demand curve moves from D to D1.
Furthermore, assume this is a constant cost industry.
Shift the supply (S) curve to the correct positions to reflect long-run equilibrium in this constant cost industry. Next, use the
interactive line to trace out the long-run industry supply curve (LRIS) for this industry.
Price per class
Yoga Industry Supply and Demand
Short-run marginal cost
Long-run
average cost
Short-run
average cost
S
Price=Marginal revenue
DRIS
D1
Quantity of classes
Quantity of classes
Price ($)
Suppose a typical (representative) corn farm has a short run production technology which results in the outcome of U-shaped Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC). Further, suppose this firm sells its product in a market where the price of the good is determined by the interaction of market Demand and Supply. Because an individual firm is very small compared to the rest of the market, we treat the market price as the price given to the firm, and the individual firm cannot impact that price.
assume we are in the Short Run for this firm. In graphing, put $ on the vertical axis and lower-case q (firm output) on the horizontal axis.
Start with the AFC0, AVC0, ATC0, and MC0 curves . show shifts in any of the cost curves, reflecting the higher cost of land (keeping in mind that this higher cost is independent of how much or how little corn is actually produced) and labeling the changed cost curves with a subscript 1. On the graph with $ on the…
Chapter 9 Solutions
Principles of Economics (12th Edition)
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