Question

One of the leading arguments for the power of a capitalistic based economy is that regarding the distinct advantage competition brings to all of the stakeholders in an economy. The premise of competitive markets is the outcome of improved quality and lower prices, or value. Individual firms react (behave) to the market dynamics and competitive forces accordingly. In order for this to occur, the market needs to be constructed in a way that there are many buyers and sellers. At the same time, each firm is trying to maximize their profit by making decisions regarding their supply of a product or service based on the opposite reaction of the demand from the buyers.

From the background above, answer the following questions on a separate word document based on the following scenario:

The market for a hamburger in Trempealeau, Wisconsin has the following structure:

Price $	Qty. demanded
1	1,200
2	1,100
3	1,000
4	900
5	800
6	700
7	600
8	500
9	400
10	300
11	200
12	100
13	0

Each producer in the market has fixed costs of $9 and the following marginal cost:

Qty.	Marginal Cost $
1	2
2	4
3	6
4	8
5	10
6	12

1.         Compute each producer’s total cost and average total cost for 1 to 6 hamburgers (5 pts)

2.         The price of a hamburger is now $11. How many hamburgers are sold? How many producers are there? How much profit does each producer earn? (5 pts)

3.         Is the situation described in question 1 a long-run equilibrium?   Why or why not? (5 pts)

4.         Suppose that in the long run there is free entry and exit. How much profit does each producer earn in the long-run equilibrium? What is the market price and number of hamburgers each producer makes? How many hamburgers are sold? How many hamburger producers are operating?

Answer 1