Due: Wednesday, March 24, 2017
1. Suppose Walter operates a local pharmacy in a perfectly competitive mar-
ket. His variable costs represent the costs of acquiring chemicals and can be expressed as T V C(Q) = Q2 − 13 Q. He has to refrigerate his chemicals, and the refrigeration cost $5 and is independent of the amount of chemicals he purchases on a specific day. In addition he has to rent his storefront, and he is contractually obligated to pay $50 regardless of whether he chooses to operate.
(a) What are Walter’s sunk fixed costs? What are Walter’s non-sunk fixed costs?
(b) Suppose the market price of pharmaceuticals is $20. How many phar-maceuticals will Walter produce?
(c) Suppose the market price of pharmaceuticals is $5. How many phar-maceuticals will Walter produce?
2. Consider the perfectly competitive market for coffee. In the short run, a coffee plantation has a cost curve of ST C(Q) = Q2 + 4Q + 8. Assume that the fixed costs are non-sunk.
(a) At what price would the plantation choose to shutdown?
(b) What is the short-run supply curve for the coffee plantation?
(c) Suppose that the market demand curve is QD = 450 − 3P and there are 40 coffee plantations in the market. What is the short-run equi-librium price?
3. For each of these outcomes, explain whether it will be the long-run equi-librium
(a) There are 20 firms each producing 10 units with T C(Q) = 14 Q2 − Q and P = 16
(b) There are 100 firms each producing 1 unit with T C(Q) = 13 Q3 −Q2 + 3Q and P = 12
(c) There are 100 firms each producing 2 units with T C(Q) = 3Q3 −
2Q2 + Q and P = 10
4. Consider the perfectly competitive labor market with labor demand LD = 100 − 2W and labor supply LS = 20 + 2W
(a) Suppose the government implemented a minimum wage of $25. What is the impact on average wages and unemployment?
(b) Show graphically the impact of imposing a minimum wage of $25 indicating the size of the deadweight loss
1
(c) Is there a minimum wage the government could set that would not create a deadweight loss? Explain.
9 years ago
Purchase the answer to view it
- econ_340_spring_2017_hw_4.docx