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10 Dec 2017

72) Once the market has adjusted to a new long run equilibrium with the new demand curve, the number of firms will be: A) 10. B) 80. C) 90. D) 100. E) 1000.

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Hubert Koch
Hubert KochLv2
11 Dec 2017
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Related questions

69) Suppose that demand in the market is given by QD= 1500 - 100P. The number of firms in this market in long run equilibrium will be: (Hint: You should use what you know about the long run equilibrium price and quantity for each firm.) A) 10. B) 80. C) 90. D) 100. E) 1000.

72) Suppose the demand curve for output in the market is given by Q = 852 - 9P. In the long run equilibrium, the number of firms: A) will equal 114 B) will equal 133 C) will equal 136 D) will equal 204 E) cannot be calculated without more information

The daily demand for travel at a small regional airport is initially QD = 1000 - p; where quantity is in passengers and price is in dollars per passenger. There are initially 10 price-taking firms serving this market and each of them has the production function: q = sqrt (lk) where q is in passengers, and labor and capital are in some appropriately specified units. The price of a unit of labor is w = 100 per day; the price of a unit of capital is v = 100 per day, and this industry has constant costs. Each firm initially has a capital stock of k0 = 80. day; and this industry has constant costs. Each firm initially has a capital stock of k0 = 80.

(a) Derive the short-run cost function, SC(q), for each firm in the market.

(b) Derive the short-run market supply function, QS.

(c) Find the short-run competitive equilibrium price, p*, and quantity, Q*. How much labor, L*, does the industry employ at the competitive equilibrium?

(d) Derive the long-run cost function, C(q), of each firm in the industry.

(e) Describe the long-run market supply curve. Does the short-run competitive equilibrium at (Q*; p*) also correspond to a long-run competitive equilibrium? Explain why or why not.

Now, imagine that a catastrophic event causes the daily demand for air travel in this market to fall unexpectedly to ~QD = 750 - p Continue to assume that each of the 10 firms has a capital of k0 = 80 in the short run.

(f) Find the new short-run competitive equilibrium price, p**, and quantity, Q**, in this market. How much labor, L**, does the industry employ in the new short-run competitive equilibrium?

(g) What is the new long-run competitive equilibrium price, p***, and quantity, Q***? Describe what must happen as the industry moves from the short-run competitive equilibrium at (Q**; p**) to the long-run competitive equilibrium at (Q***; p***). How much labor L*** does the industry employ at the new long-run equilibrium?

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