Assignment:
Application
1. Suppose the following data describe the demand for fruit smoothies:
|
Price $11
|
$10
|
$9
|
$8
|
$7
|
$6
|
$5
|
$4
|
$3
|
$2
|
|
Quantity 7
|
10
|
13
|
16
|
19
|
22
|
25
|
28
|
31
|
34
|
|
Demanded
|
|
|
|
|
|
|
|
|
|
Five identical, perfectly competitive firms are producing these beverages. The cost of producing these beverages at each firm is the following:
|
Quantity 0
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
|
TC $5
|
$8
|
$10
|
$13
|
$17
|
$22
|
$28
|
$36
|
$45
|
$55
|
$57
|
(a) What price will prevail in this market?
(b) What quantity is produced?
(c) How much profit (loss) does each firm make?
(d) What happens to price if two more identical firms enter the market?
2. Assume that the price of silk ties in a perfectly competitive market is $21 and that the typical firm confronts the following costs:
|
Quantity
|
|
|
|
|
|
|
|
|
|
|
|
|
(Ties per Day)
|
0
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
|
Total Cost
|
$10
|
$17
|
$26
|
$37
|
$50
|
$65
|
$82
|
$101
|
$122
|
$145
|
$170
|
(a) What is the profit-maximizing rate of output for the firm?
(b) How much profit does the firm earn at that rate of output?
(c) If the price of ties falls to $15, how many ties should the firm produce?
(d) At what price should the firm shut down?