1. Consider a perfectly competitive producer in the U.S. natural gas market. In the short run,...

 

Transcribed Image Text:

1. Consider a perfectly competitive producer in the U.S. natural gas market. In the short run, this producer's average fixed cost, average variable cost, and marginal cost functions are: AFC(Q) = 24 Q AVC(Q) = 3Q + 5, MC(Q) = 60+ 5. The market price, which the producer takes as given, is P = $23/ft. a. Set P = MC to calculate the short-run quantity of natural gas (Q*) that would be supplied by the producer, if a decision is made to stay in business. (1 pt) b. Calculate the producer's average fixed cost (AFC) and average variable cost (AVC) values at Q*. c. Calculate the producer's rent (R) and quasi-rent (QR). (2 pt) (2 pt) 2. Consider the Asia-Pacific LNG market, which is dominated by Japan. Suppose that the inverse supply function for this market is given by: P = 1 + 1 Q. Let Japan's marginal factor cost and marginal revenue product functions be as follows: 1 MFC = 1+Q, 1 MRP = 17- Q. a. Calculate the quantity of LNG that Japan would purchase (Qm) in this market and the price per unit of LNG (Pm). (2 pt) (3 pt) b. Calculate consumer surplus, producer surplus, and social welfare in this market. c. Now suppose that Japan loses its market power, and the Asia-Pacific LNG market becomes perfectly competitive. Calculate the equilibrium quantity (Qpc) and price (Ppc) of LNG in this perfectly competitive market. (2 pt) d. Calculate consumer surplus, producer surplus, and social welfare in this perfectly competitive market. (3 pt) 1. Consider a perfectly competitive producer in the U.S. natural gas market. In the short run, this producer's average fixed cost, average variable cost, and marginal cost functions are: AFC(Q) = 24 Q AVC(Q) = 3Q + 5, MC(Q) = 60+ 5. The market price, which the producer takes as given, is P = $23/ft. a. Set P = MC to calculate the short-run quantity of natural gas (Q*) that would be supplied by the producer, if a decision is made to stay in business. (1 pt) b. Calculate the producer's average fixed cost (AFC) and average variable cost (AVC) values at Q*. c. Calculate the producer's rent (R) and quasi-rent (QR). (2 pt) (2 pt) 2. Consider the Asia-Pacific LNG market, which is dominated by Japan. Suppose that the inverse supply function for this market is given by: P = 1 + 1 Q. Let Japan's marginal factor cost and marginal revenue product functions be as follows: 1 MFC = 1+Q, 1 MRP = 17- Q. a. Calculate the quantity of LNG that Japan would purchase (Qm) in this market and the price per unit of LNG (Pm). (2 pt) (3 pt) b. Calculate consumer surplus, producer surplus, and social welfare in this market. c. Now suppose that Japan loses its market power, and the Asia-Pacific LNG market becomes perfectly competitive. Calculate the equilibrium quantity (Qpc) and price (Ppc) of LNG in this perfectly competitive market. (2 pt) d. Calculate consumer surplus, producer surplus, and social welfare in this perfectly competitive market. (3 pt)