In: Economics
Quantity | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
Marginal Cost | 50 | 40 | 60 | 80 | 100 | 120 | 140 |
a. If the price of the good is $100, how many units would this firm produce? How many would be produced in the market?
b. If the price of the good is $120, how many units would this firm produce? How many would be produced in the market?
c. If the price of the good is $140, how many units would this firm produce? How many would be produced in the market?
d. Suppose the table below gives the points along the market demand curve for this good.
Price | 180 | 160 | 140 | 120 | 100 | 80 |
Quantity Demanded | 300 | 400 | 500 | 600 | 700 | 800 |
Given all the information above, what will be the equilibrium price and quantity in this perfectly competitive market?
e. Now suppose that each unit produced by these firms creates waste which negatively affects others in the economy by an amount equal to $40 for each unit produced. If firms in this market considered the social costs of production when deciding output, rather than the private costs, what would be the equilibrium price and quantity?
f. How does this price and quantity compare to the outcome when only private costs were considered?
g. List 2 ways the government could get these firms to consider the social costs of production when deciding their output levels.
Price | 15 | 14 | 13 | 12 | 11 | 10 | 9 | 8 |
Quantity Demanded | 10 | 20 | 30 | 40 | 50 | 60 | 70 | 80 |
The market supply contains the following points:
Price | 15 | 14 | 13 | 12 | 11 | 10 | 9 | 8 |
Quantity Supplied | 70 | 65 | 60 | 55 | 50 | 45 | 40 | 35 |
a. What is the equilibrium price and quantity?
b. Now suppose each product purchased by these consumers also creates a positive externality for others of $3. If these consumers were to consider the social benefits of their purchases when deciding to buy, rather than just the private benefits, what would be the new equilibrium price and quantity?
c. How does this new equilibrium compare to the previous equilibrium when only private benefits were considered?
d. List 2 ways the government could get these consumers to consider the social benefits of their purchases when deciding to buy.
Quantity | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
MC | 50 | 40 | 60 | 80 | 100 | 120 | 140 |
a.
In perfectly competitive market: Equilibrium condition for firm is Price=MC.
If price= 100, MC is 100 at Quantity=5
This firm would produce 5 units
There are 100 identical firm each will produce 5 units so:
Units produced in the market= 5 x 100= 500 units
b.
In perfectly competitive market: Equilibrium condition for firm is Price=MC.
If price= 120, MC is 120 at Quantity=6
This firm would produce 6 units
There are 100 identical firm each will produce 6 units so:
Units produced in the market= 6 x 100= 600 units
c.
In perfectly competitive market: Equilibrium condition for firm is Price=MC.
If price= 140, MC is 140 at Quantity=7
This firm would produce 7 units
There are 100 identical firm each will produce 7 units so:
Units produced in the market= 7 x 100= 700 units
d.
Quantity supplied in the market= Each firm's output x 100
Price | 180 | 160 | 140 | 120 | 100 | 80 |
Quantity Demanded | 300 | 400 | 500 | 600 | 700 | 800 |
Quantity supplied | - | - | 700 | 600 | 500 | 400 |
Equilibrium arises where Quantity demand= Quantity supplied
Equilibrium price= 120
Equilibrium quantity= 600 units