In the competitive market for widgets there are 125 identical consumers. Each individual consumer has the...
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In the competitive market for widgets there are 125 identical consumers. Each individual consumer has the following demand function for widgets: qP (P) = 5 - F 5 where q is the quantity an individual consumes and P is the widget's price. This problem will look at a cost function that will depend on when production takes place. Suppose each individual firm has the following cost function: q² C(q) =F+q+ where C(q) is the cost to the firm of producing q units of the good. Use the information about to answer the following questions: (a) (1 mark) What is the market demand curve here? (b) (3 marks) Suppose there are 25 firms in the market, what is the market supply curve? Why does the value of F not matter to determine the market supply curve? (c) (4 marks) Using you answer from parts (a) and (b), what is the equilibrium quantity Q and market clearing price P* for this market? What is consumer surplus and producer surplus? (d) (6 marks) Suppose the government implements a tax of 7 = $1.50 per widget sold on the suppliers of the good. Explain what happens to the quantity sold in the market as well as the price(s). What is the deadweight loss? How much revenue does the government earn? What value of F ensures the firms earn 0 profits here? (e) (6 marks) Ignore the tax from the part (d). Instead of the supply curve found in part (b), what is the producer surplus when there are 50 firms in the market? What is the producer surplus when there are 175 firms? In the competitive market for widgets there are 125 identical consumers. Each individual consumer has the following demand function for widgets: qP (P) = 5 - F 5 where q is the quantity an individual consumes and P is the widget's price. This problem will look at a cost function that will depend on when production takes place. Suppose each individual firm has the following cost function: q² C(q) =F+q+ where C(q) is the cost to the firm of producing q units of the good. Use the information about to answer the following questions: (a) (1 mark) What is the market demand curve here? (b) (3 marks) Suppose there are 25 firms in the market, what is the market supply curve? Why does the value of F not matter to determine the market supply curve? (c) (4 marks) Using you answer from parts (a) and (b), what is the equilibrium quantity Q and market clearing price P* for this market? What is consumer surplus and producer surplus? (d) (6 marks) Suppose the government implements a tax of 7 = $1.50 per widget sold on the suppliers of the good. Explain what happens to the quantity sold in the market as well as the price(s). What is the deadweight loss? How much revenue does the government earn? What value of F ensures the firms earn 0 profits here? (e) (6 marks) Ignore the tax from the part (d). Instead of the supply curve found in part (b), what is the producer surplus when there are 50 firms in the market? What is the producer surplus when there are 175 firms?
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1 Market demand curve Market Demand Curve the relationship between the quantity of a product that all consumers in the market are willing to buy and its price The market demand curve can be obtained b... View the full answer
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