Suppose there are a 100 beach clubs at the beach in Scheveningen. Each club has to...

 

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Suppose there are a 100 beach clubs at the beach in Scheveningen. Each club has to have a permit from the municipality to be able to operate and the total amount of permits is set to 100. Each beach club has to decide how many sun loungers to put out on the beach for the tourists at each given price. A beach club therefore determines it's supply curve. The output of the beach clubs (sun loungers) is indicated by q. The daily rent for a sun lounger is indicated by p. A beach club has the following cost function as a function of the output level q: C(q) = 9+q+q² The costs consist of a variable part and a fixed part. The variable costs contain, among other things, the costs of hiring more workers to put up the sun loungers. The fixed costs contain the cost of the license. (a) (0.5 points) Determine analytical expressions for marginal costs, average costs, average variable costs, and average fixed costs. Plot the above specified cost functions, MC(q), AC(q), AVC(q), and AFC(q). Determine the point of intersection of AC(q) and MC(q). Explain why AC(q) is increasing to the right of this point. (b) (0.5 points) One of the decisions that a beach club has to make in the short run is whether or not to stay in business. When will the beach club decide to shut down? (c) (0.5 points) Determine the supply curve of a beach club in the long run. Illustrate the supply curve graphically in a (q,p)-diagram. (d) (0.5 points) Suppose that there are 100 beach clubs at the beach in Scheveningen. They are all identical: they all face the same cost function given above. Compute the total market supply denoted by Q as a function of price p. (e) (0.5 points) The other side of the market consists of the tourists who have a certain demand for sun loungers. The market demand curve (obtained by aggregating the individual demand curves of each separate tourist) is Qd = 250-10p. Compute the short run market equilibrium analytically. Indicate the equilibrium price and the equilibrium quantity of sun loungers. Will the firms find it profitable to offer sun loungers at this price? Suppose there are a 100 beach clubs at the beach in Scheveningen. Each club has to have a permit from the municipality to be able to operate and the total amount of permits is set to 100. Each beach club has to decide how many sun loungers to put out on the beach for the tourists at each given price. A beach club therefore determines it's supply curve. The output of the beach clubs (sun loungers) is indicated by q. The daily rent for a sun lounger is indicated by p. A beach club has the following cost function as a function of the output level q: C(q) = 9+q+q² The costs consist of a variable part and a fixed part. The variable costs contain, among other things, the costs of hiring more workers to put up the sun loungers. The fixed costs contain the cost of the license. (a) (0.5 points) Determine analytical expressions for marginal costs, average costs, average variable costs, and average fixed costs. Plot the above specified cost functions, MC(q), AC(q), AVC(q), and AFC(q). Determine the point of intersection of AC(q) and MC(q). Explain why AC(q) is increasing to the right of this point. (b) (0.5 points) One of the decisions that a beach club has to make in the short run is whether or not to stay in business. When will the beach club decide to shut down? (c) (0.5 points) Determine the supply curve of a beach club in the long run. Illustrate the supply curve graphically in a (q,p)-diagram. (d) (0.5 points) Suppose that there are 100 beach clubs at the beach in Scheveningen. They are all identical: they all face the same cost function given above. Compute the total market supply denoted by Q as a function of price p. (e) (0.5 points) The other side of the market consists of the tourists who have a certain demand for sun loungers. The market demand curve (obtained by aggregating the individual demand curves of each separate tourist) is Qd = 250-10p. Compute the short run market equilibrium analytically. Indicate the equilibrium price and the equilibrium quantity of sun loungers. Will the firms find it profitable to offer sun loungers at this price?

Answer rating: 100% (QA)

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