Ask Microeconomics Expert

Part - 1

Question 1:

1. If a perfectly competitive industry consisting of identical rms is in long run equilibrium and the market demand increases, with nothing else changing, then in the new long run equilibrium individual rm output will be higher.

2. The unconditional (pro t maximizing) factor demand for an input equals the conditional factor demand for the same input at the pro t maximizing output quantity.

3. If average variable cost is decreasing then marginal cost is decreasing.

4. The long run e ect of a quantity tax imposed on a competitive industry is that consumers end up paying the whole tax amount.

5. It is possible to have a Pareto ecient allocation in which someone is worse o than he is at another allocation that is not Pareto ecient.

Question 2:

A competitive software rm has a production function f(x1; x2) = px1x2 where x2 is the number of computers and x1 is number of workers employed. Let the workers' wage be w1 = 4, the computer price is w2 = 16; and output price be p = 4: Suppose that in the short run the rm can only vary the amount of workers it employs but not the number of computers and that the latter is xed at  x2 = 4 in the short run.

(a) Derive the rm's short run conditional factor demand for workers if the rm wants to produce y units of output. What is the rm's short run cost function for producing output y?

(b) What are the rm's xed costs, average variable costs, average costs and marginal costs of producing output y? Sketch the AC, AVC and MC curves on a graph.

(c) What is the rm's short run supply curve? What is the pro t maximizing amount of output that the rm will produce in the short run? At this output level how much pro ts/losses does the rm make?

Suppose now that the rm is in the long run and can vary both its factors of production.

(d)What are the rm's long run conditional factor demands for producing y units of output? What is its long run cost function? What is its long run supply curve?

(e) Assuming that input and output prices remain at their given short run levels in the long run as well, how much would the rm produce in the long run?

Part-2

A rm has a production technology involving two inputs, capital (K) and labor (L), f(K; L) = K1=3 L1=3. The price of capital is r; the price of labor is w, and the output price is p. Let r = 1 and w = 9.

Assume rst that both inputs are variable.

(a) Derive the rm's conditional factor demands for producing y units of output, K(y) and L(y). What is the rm's cost function c(y)? What are the average and marginal cost functions?

For any output price p, derive the rm's long run supply function y = S(p).

(b) If p = 9 how much output will the rm produce and how much pro ts would it make? Now assume that in the short run the rm's quantity of capital is xed at K = 1:

(c) What is the conditional factor demand for labor for producing y units of output? What is the short run cost function of the rm, cSR(y)? What are the short run average and marginal cost functions? Are there any xed costs? For any output price p derive the rm's short run supply function y = SSR(p).

(d) For what output quantity, y ; is K = 1 the optimal long run level of capital? Show that the long run average cost curve (from part a) and the short run average cost curve (from part c) are tangent at y = y . Explain why.

Part 3

Suppose that wheat is produced under perfectly competitive conditions and market demand for wheat is D(p) = 410 10p. Individual wheat farmers all have identical long run cost functions c(y) = 64 + y + y2 where y is the amount of output they produce.

(a) How much would each farmer produce in the long run? How many farmers would exist in the industry in the long run?

(b) Now suppose that the demand for wheat falls to D2(p) = 330 10p: What will be the short run price of wheat (i.e. when the number of farmers and farmers' outputs are xed)?

How about the new long run price? What will be the new equilibrium number of farmers in the industry in the long run?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9745432

Have any Question?


Related Questions in Microeconomics

Question show the market for cigarettes in equilibrium

Question: Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the mode ...

Question recycling is a relatively inexpensive solution to

Question: Recycling is a relatively inexpensive solution to much of the environmental contamination from plastics, glass, and other waste materials. Is it a sound policy to make it mandatory for everybody to recycle? The ...

Question consider two ways of protecting elephants from

Question: Consider two ways of protecting elephants from poachers in African countries. In one approach, the government sets up enormous national parks that have sufficient habitat for elephants to thrive and forbids all ...

Question suppose you want to put a dollar value on the

Question: Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost? The response must be typ ...

Question in the tradeoff between economic output and

Question: In the tradeoff between economic output and environmental protection, what do the combinations on the protection possibility curve represent? The response must be typed, single spaced, must be in times new roma ...

Question consider the case of global environmental problems

Question: Consider the case of global environmental problems that spill across international borders as a prisoner's dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries ...

Question consider two approaches to reducing emissions of

Question: Consider two approaches to reducing emissions of CO2 into the environment from manufacturing industries in the United States. In the first approach, the U.S. government makes it a policy to use only predetermin ...

Question the state of colorado requires oil and gas

Question: The state of Colorado requires oil and gas companies who use fracking techniques to return the land to its original condition after the oil and gas extractions. Table 12.9 shows the total cost and total benefit ...

Question suppose a city releases 16 million gallons of raw

Question: Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits in ...

Question four firms called elm maple oak and cherry produce

Question: Four firms called Elm, Maple, Oak, and Cherry, produce wooden chairs. However, they also produce a great deal of garbage (a mixture of glue, varnish, sandpaper, and wood scraps). The first row of Table 12.6 sho ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As