Chapter 9 Practice Problems Perfect Competition PDF

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ECON 104A Winter 2020 Chapter 9 Practice Problems: Perfect Competition 1. Paper is produced in a perfectly competitive market. Each identical …rm has a total cost function T C (q ) = 50 + 40q + 0:5q 2 . Assume initially that all $50 of the …xed costs are sunk. (a) Find the equations for ATC, ANSC and MC. Draw these curves on a graph. Label the minimum points of the ATC and ANSC. (b) Write out the …rm’s supply curve incorporating it’s shut-down price when all $50 are sunk. (c) Redo parts (a) and (b), but assume that only $32 of the $50 …xed costs are sunk. (d) Assuming the …rm has the supply curve you derived in part (c), how many units does the …rm produce and how much pro…t does it make if the market price is equal to $60? 2. All …rms in a perfectly competitive market have a short run total cost of 100 + 20q + q 2 and a short run nonsunk cost of N S C (q ) = 64 + 20q + q 2 :

( ) =

TC q

(a) Find the shut-down price for these …rms. (b) Write the equation for the supply curve of the …rm (be sure to incorporate the shut down price into your answer). (c) If there are 100 …rms in the market, write the equation for the market supply curve.

(d) An individual consumer has demand equal to Q = 20  0:1P and there are 100 consumers. Find the market demand, the current equilibrium market price and quantity.

(e) How many units of

q

does each of the 100 …rms produce?

(f) Assume that …rms cannot change their cost structure in the long run. Given the current short-run conditions, do …rms enter or exit the market? (g) What is the long-run equilibrium price? (h) How many …rms will be in the market in the long run? 3. Show mathematically how the pro…t-maximizing condition of marginal revenue equal to marginal cost is derived.

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