Suppose there is a perfectly competitive market for curry puffs. The perfectly competitive equilibrium price in...

Suppose there is a perfectly competitive market for curry puffs. The perfectly competitive equilibrium price in this market is RM5 per puff. The perfectly competitive equilibrium quantity is 5,000 curry puffs. (a) Using a diagram, illustrate the perfectly competitive equilibrium in the market for curry puffs. Clearly label the areas of consumer surplus, producer surplus, and social surplus at this equilibrium. [3 marks]

(b) Suppose that the government introduces a price floor for curry puffs at RM7 each.

Note: Use your diagram in part (a) to indicate and explain what happens to consumer surplus, producer surplus, and social surplus under this policy.

(c) In addition to imposing the price floor, the government now also agrees to buy any curry puffs that are offered for sale at this price but are not purchased by consumers. Any curry puffs bought by the government are thrown in the garbage (i.e. they are thrown away and not eaten). Discuss the impact of this policy to the producers, consumers and the society as a whole. [3 marks]

Expert Solution

Rahul Sunny answered 1 year ago

Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR=MC at...

Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR=MC at 1200 units of output. At 1200 units, atc is $23 and avc is $18. The best policy for this firm is to ___ in the short run. Also, this firm earns ___ of ___ if it produces and sells 1200 units. a.shut down, losses, 15,600 b.shut down, losses, 9,600 c.continue to produce, losses, $15,600 d.continue to produce, profits, $15,600 Ultimately, market supply curves are...

Suppose we have a perfectly competitive market where at the equilibrium price the total market demand...

Suppose we have a perfectly competitive market where at the equilibrium price the total market demand is 300 units. Each individual firm in the market has a cost function C(Q) = 50 -2Q + 0.4Q^2. The number of firms this market can support in the long run is _____?

A perfectly competitive market operates in a market with an equilibrium price of P. Its total...

A perfectly competitive market operates in a market with an equilibrium price of P. Its total cost is given by TC = FC + VC(q), where FC (>0) is the fixed cost, VC(q) is the variable cost and and q is the quantity produced by the firm. Write down the optimization problem of this firm. Write down the first order condition. (Assume from now on the equation formed by the first order condition has an interior solution q*>0.) Write down...

The market of oranges is perfectly competitive and the equilibrium price is 30€. The supply function...

The market of oranges is perfectly competitive and the equilibrium price is 30€. The supply function in the market has a positive slope and the government is considering imposing a tax of 2€ per unit. Compute the prices the orange producers will receive and the consumers will pay at the new equilibrium if the market demand is perfectly elastic. Draw an appropriate graph and explain your findings.

Suppose that a perfectly competitive industry is in long-run equilibrium. Then the price of a complementary...

Suppose that a perfectly competitive industry is in long-run equilibrium. Then the price of a complementary good decreases. Use two graphs, one for the firm, and one for the industry (and words) to explain what will happen in the short run, and then the long run, to: a. The market demand curve? b. The market supply curve? c. Market price? d. Market output? e. Representative firm output? f. Representative firm profit?

Suppose all firms in a perfectly competitive market are in long-run equilibrium. Illustrate what a perfectly...

Suppose all firms in a perfectly competitive market are in long-run equilibrium. Illustrate what a perfectly competitive firm will do if market demand rises.

Suppose that the restaurant market is a perfectly competitive industry in long run equilibrium. Each of...

Suppose that the restaurant market is a perfectly competitive industry in long run equilibrium. Each of the identical restaurants has the same (long run) cost function: T C = 225 + q 2 , where q is the volume of sales by each establishment. Each of the identical firms therefore have the same marginal cost: MC = 2q. (a) What is the average cost function for the identical restaurants? (b) How much does each individual firm produce in the long...

Suppose the market for toilet paper is perfectly competitive. The long run equilibrium is characterized by...

Suppose the market for toilet paper is perfectly competitive. The long run equilibrium is characterized by the price being $2 per roll with 20 firms making toilet paper, each selling 5 million rolls per week for a total of 100 million rolls being sold each week. A pandemic then breaks out, where people are afraid that the world will run out of toilet paper. a) what happens in the short run to: -1) The price of a roll of toilet...

Consider a profit-maximizing firm operating in a perfectly competitive industry. If the equilibrium market price of...

Consider a profit-maximizing firm operating in a perfectly competitive industry. If the equilibrium market price of the good falls below the minimum of the firm's average total cost curve but is greater than the minimum of its average variable cost curve, the firm: Group of answer choices should increase the price of its product in order to increase profits should increase the price of its product in order to sell more units of output should shut down and suffer a...

Assume that a perfectly competitive hand sanitiser market is in long-run equilibrium. The price of hand...

Assume that a perfectly competitive hand sanitiser market is in long-run equilibrium. The price of hand sanitisers is observed to increase during the COVID 19 pandemic, and then it returns back to its normal price after the pandemic.Include in your discussion the profit levels in each case.

Question