A village has relied on privately owned bakeries to supply the bread it needs. The demand...
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A village has relied on privately owned bakeries to supply the bread it needs. The demand function for bread per day in the village is: D(P) = 600 – 5P, where P is the price per loaf of bread. Each bakery's cost function is given by: C(q) = 200 + q/2 if q>0 but zero if the bakery shuts down. In other words, the fixed cost is not sunk. The bakery sector is competitive. Each bakery takes the price as given. (a) (b) Find the marginal and average cost functions for the bakery and graph them. Identify the bakery's supply curve on your graph. At what price will the bakery shut down? Explain your answer. Suppose there are 20 bakeries in the village. What is the short-run equilibrium price of a loaf? How many loaves does each bakery sell and what is its profit? Assume there is free entry and exit of bakeries. What do you predict will happen to this market? (c) (d) Briefly state the conditions that the price of bread, the number of bakeries and each bakery's output must satisfy in long-run equilibrium and determine these quantities. Suppose the market demand curve shifts to D(P) = 500 – 5P. How does this change your answer to (e) if at all? (8) Explain why the competitive equilibrium is efficient. (e) (f) A village has relied on privately owned bakeries to supply the bread it needs. The demand function for bread per day in the village is: D(P) = 600 – 5P, where P is the price per loaf of bread. Each bakery's cost function is given by: C(q) = 200 + q/2 if q>0 but zero if the bakery shuts down. In other words, the fixed cost is not sunk. The bakery sector is competitive. Each bakery takes the price as given. (a) (b) Find the marginal and average cost functions for the bakery and graph them. Identify the bakery's supply curve on your graph. At what price will the bakery shut down? Explain your answer. Suppose there are 20 bakeries in the village. What is the short-run equilibrium price of a loaf? How many loaves does each bakery sell and what is its profit? Assume there is free entry and exit of bakeries. What do you predict will happen to this market? (c) (d) Briefly state the conditions that the price of bread, the number of bakeries and each bakery's output must satisfy in long-run equilibrium and determine these quantities. Suppose the market demand curve shifts to D(P) = 500 – 5P. How does this change your answer to (e) if at all? (8) Explain why the competitive equilibrium is efficient. (e) (f)
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Village firms are competitive and Demand is given by Q 600 5P Cost function is C 200 q22 a Marginal ... View the full answer
Related Book For
Microeconomics
ISBN: 9781464146978
1st edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson
Posted Date:
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