Suppose there are 2000 identical firms producing pumpkins in a perfectly competitive market and that the total cost curve for each firm is given by TC= (1/2q^2+5q+20.5) and MC = q+5.
A) What is the typical firm's short-run supply curve?
B) Derive and graph the market short-run supply curve.
C) If the market demand curve is P=20 - (1/1000)Qd what are P* and Q* in the short-run? Show the algebra and graph
D) Derive and graph the market marginal revenue curve.
E) How many pumpkins is each pumpkin farm producing? Show your work using the profit maximizing rule!!
F) Are there profits in this market? Calculate each firm’s profits, and then multiply it by the number of firms. If so, what are they and are they sustainable in the long run?
G) Graphically illustrate the consumer and producer surplus at the market equilibrium.
H) Suppose Linus decides to buy out all 2000 pumpkin firms at once and monopolize the pumpkin market. Assume he successfully buys everyone's firm and that there are no cost advantages associated with being a monopolist (his costs don’t change when he becomes a 14 monopoly). Also assume the demand is the same whether the market is perfectly competitive or monopolistic. Graph the demand and MC curve for?Linus’ company. (Hint: Linus wants the MC to be equal for all his 2000 plants/pumpkin producing locations, so he will add up the MC, just like you did in the perfect competition case above, however, P does not equal MC in a monopoly.)
I) What is the monopoly’s profit maximizing quantity and price? Hint: What is Linus’ MR?
J) How many pumpkins are produced by each plant (pumpkin producing location) within the giant firm?
K) How profitable is each plant? Based on that number, what are Linus’ profits as the monopolist? Are these sustainable in the long run?
I) Graphically illustrate the producer and consumer surplus and any inefficiency. Discuss how these are different than the perfectly competitive case.
M) Do you believe costs wouldn’t change if when the many firms are merged into a single firm? Use returns to scale in your answer. Would there be increasing, decreasing or constant returns to scale if 2000 firms merged into one? Defend your answer and discuss how it will affect costs.