ECON 4340 Question 2

Question 2: Consider a good that can be produced using the technology: {a} (b) {C} (d) (6} (fl (g) C(q) = l + 10:; + 4.;2 Find and show in a diagram the Marginal Cost (MC), Average Variable Cost (AFC) and Average Total Cost (AC) for this technology. in your diagram identify the Short Run (SR) and the LOng Run {LR} supply curve of a perfectly competitive firm using this technology, assuming that the xed cost is sunk in the SR and avoidable in the LR. Explain for what output levels the technology shows increasing returns to scale and for which decreasing retums to scale. What does it mean for the market for this good to be a natural monopoly? For what outputs is that the case? Suppose that the inverse demand function for this good is given by P0?) = 240' 2Q Explain whether the market is a natural monopoly or not Suppose that there are n = 16 rms perfectly competitive firms able to use the technology in (a). Find the rm and industry short-run and long-run supply curve. Suppose that the demand for the good is given by Q\"(p) = 125C! 31;. Find the shortrun perfectly competitive equilibrium. Do you expect rms to be entering or exiting the market? What is the long run perfectly competitive equilibrium in the market