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Suppose that there are 200 identical firms that sell five units each of the same good when the market price is $10 per unit. They have identical individual supply curves that are positively sloped straight lines that go during the origin. 100 of the firms are foreign firms and 100 are domestic firms.

1. Draw a graph of the aggregate supply curve. Indicate on your graph the quantities supplied at the prices of $5, $10 and $20.

2. Suppose now that the government imposes a quota limiting each of the 100 foreign firms to a maximum of five units each. Draw the new aggregate supply curve that shows the effect of the quota. Indicate on your graph the quantities supplied at the prices of $5, $10 and $20.

3. Decide the equation of the aggregate supply curve in part b.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91226413

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