1. The daily cost of making pizza in Seattle is C(Q) = 4Q + (Q2/40), plus an avoidable fixed cost of $10; marginal cost is MC = 4 + (Q/20). In the long run firms may enter the market freely. What is the long-run market supply curve?
2. Suppose the price of bagels in Allentown is currently $0.75 per bagel. There are 10 low-cost bakeries that can produce bagels, each of which has the supply function Qs = 200P - 100. There are 10 high-cost bakeries that can produce bagels, each of which has the supply function Qs = 200P - 200. (These individual supply functions apply in the short run and the long run.) Which bakeries will be active when the price is $0.75? If the price rises to $1.25, what will be the market supply in the short run? In the long run? Graph the short-run and long-run market supply curves.
3. Suppose the daily demand function for pizza in Berkeley is Qd = 1,525 - 5P. The variable cost of making Q pizzas per day is C(Q) = 3Q + 0.01Q2, there is a $100 fixed cost (which is avoidable in the long run), and the marginal cost is MC = 3 + 0.02Q. There is free entry in the long run. What is the long-run market equilibrium in this market? Suppose that demand increases to Qd = 2,125 - 5P. If, in the short run, fixed costs are sunk, what is the new short-run market equilibrium? What is the new long-run market equilibrium if there is free entry in the long run? What if, instead, demand decreases to Qd= 925- 5P?
4. The daily demand for pizzas is Qd = 750 - 25P, where P is the price of a pizza. The daily costs for a pizza company initially include $50 in fixed costs (which are avoidable in the long run but sunk in the short run), and variable costs equal to VC = Q2/2, where Q is the number of pizzas produced in a day. Marginal cost is MC = Q. Suppose that in the long run there is free entry into the market. If fixed costs fall to $18, what is the new short-run market equilibrium? What is the new market equilibrium in the long run?
5. The market demand and supply functions for corn are the same as in Problem 1. Suppose the government gives corn farmers a $0.70 subsidy per bushel of corn. What will be the effects on aggregate surplus, consumer surplus, and producer surplus? What will be the deadweight loss created by the subsidy?
Problem 1: The market demand function for corn is Qd = 15 - 2P and the market supply function is Qs = 5P - 2.5, both measured in billions of bushels per year. Suppose the government imposes a $2.10 tax per bushel. What will be the effects on aggregate surplus, consumer surplus, and producer surplus? What will be the deadweight loss created by the tax?
6.The market demand and domestic supply functions for corn are the same as in Problem 1. Suppose the import supply curve is infinitely elastic at a price of $1.50 per bushel. What would be the welfare effects of a $0.50 per bushel tariff?
7. What is the deadweight loss from monopoly pricing in Problem 3?
Problem 3: As in Worked-Out Problem 17.2, Kalamazoo Competition-Free Concrete faces demand function Qd = 16,000 - 200P. Suppose that Kalamazoo's marginal cost is instead $20 per cubic yard and its avoidable fixed cost is $100,000 per year. What is its profit-maximizing sales quantity and price? How would your answer change if Kalamazoo had an avoidable fixed cost of $200,000 a year? What if that fixed cost were instead sunk?
8. A local video rental monopolist faces the weekly demand function D(P) = 1,000 - 50P. The marginal cost of a rental is $1. Suppose the town government places a $1 tax on all video rentals. What effect will the tax have on the price the monopolist charges? What share of the tax do consumers bear?
9. The Happyland Hospital is a monopsonist employer of nurses in the small city of Happyland. The market supply function of nurses is S(W) = 0.1W - 100, where W is the nurses' weekly wage. What is the hospital's marginal expenditure, ME? If the hospital's marginal benefit of a nurse is $2,000 per week no matter how many nurses it hires, what is the profit-maximizing number of nurses for the hospital to hire? What will the nurses' wage be? What is the deadweight loss?
10. Consider a movie theater monopolist who faces the same demands from students and other adults as the monopolist in Worked-Out Problem 18.2 but who has cost function C(Q) = Q + 0.005Q2 with marginal cost MC = 1 + 0.01Q, where Q is the total number of tickets sold (equal to the sum of student tickets and other adult tickets). What is the monopolist's best price if discrimination is not possible? What are her best prices if discrimination is possible? What is the effect of discrimination on aggregate surplus? On consumer surplus? What would happen to the student price under price discrimination if the demand of other adults increases to QdA = 1,800 - 100P? Why?