Consider a competitive firm with an average cost function given by AC(Q)=2Q2-20Q+70. (1) Find the marginal...

Consider a competitive firm with an average cost function given by AC(Q)=2Q2-20Q+70.

(1) Find the marginal cost function. .

(2) Draw the firms average cost and marginal cost curves. (Make sure to label the axes, intercepts, slopes, ...etc.)

(3) Is this firm in the short-run or in the long run? Why?
(4) Show the firms supply curve on the graphs you drew in (b). Make sure to label the axes.

(5) What is the competitive price?

(6) (3 points) How much profit would the firm make if the market price of the good is 40? On the graphs you drew in b, shade the area that corresponds to this profit level.

For the remaining questions, assume that the market demand is given by D(P)=800-2P.

(7) Draw the market demand. (Make sure to label the axes, intercepts, slopes, ...etc.)

Draw the supply function.
What is the market equilibrium (price and quantity)?

(10) How many firms operate in the market?
Suppose that the government levies a sales tax of $5 on producers for each unit sold.

(11) What will be the long-run equilibrium market price after the tax?

(12) What will be the long-run equilibrium market output after the tax?

(13) How many firms will exit the market after the tax?

Solutions

Expert Solution

Rahul Sunny answered 2 weeks ago

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