Questions:
1. A horse walks into a bar. The bartender says, "Why the long face?" The horse says, "I am willing to buy as much beer as you will sell me, but I am only willing to pay $3 for it."1 The bartender has a total cost curve of T C(q) = q^2 - q.
a) What is the Bartender's marginal and marginal cost?
b) How many beers will the bartender sell the horse?
c) Suppose the bartender also incurs a non-sunk fixed cost of $9 (electricity) if he chooses to open the bar. Would he choose to open if the horse is his only customer? Explain
2. Consider a Popsicle stand that sells in a perfectly competitive market. The Popsicle stand has variable costs related to labor and materials of 2q^2-1/2q It has mortgage on the stand that costs $5. Assume the market is illiquid so that the stand could not sell its assets to another buyer. If it chooses to operate, it must pay $3 in electricity to keep the Popsicles frozen throughout the day.
(a) What are the stand's non-sunk ?xed costs? What are the stand's sunk ?xed costs?
(b) What is the supply curve for the Popsicle stand?
(c) How many Popsicles will the stand produce if the price is $7.50?
3. For each of these outcomes. Explain wheter it can be the long-run equi-librium:
a) There are 20 firms each producing 8 units with TC(Q)=q^2-1/4q and P=20
b) There are 100 firms each producing 1 unit with TC(Q)=4Q^3-1/2Q^2+Q with P=34/9
4. Consider the market for frozen concentrated orange juice, which is a constant-cost industry. The long-run total costs of production are T C(Q) = Q^3 - 2Q^2 + 4Q. The demand is given by Q = 80 - 3P
(a) What is the long-run equilibrium price?
(b) How many ?rms will enter the market?
(c) How much output will each ?rm produce?