firm in a perfectly competitive constant cost industry has total costs in the sh
ID: 1122627 • Letter: F
Question
firm in a perfectly competitive constant cost industry has total costs in the shon Ort 30-33. A (ty TC-1200+36q +3q2, FC 525 run given by: where q is output per day and TC is the total cost per day in dollars. The firm has fixed costs of $525 (already included in the T equation above The TC equation generates minimum average costs of $1 56 (per unit) at q 20. You are also told that this size firm generates minimum long run average costs (that is, minimum LRAC occurs at q 20, with min LRAC- $156). There are 200 firms in this industry in the short run. Suppose that the demand curve facing the industry is given by the equation P 356 02Q where P is the price per unit and Q is the number of units demanded per day. Presently there is no international trade in this product. Questions 30 through 33 concern this firm and this industry. 30. Suppose this industry is in short run equilibrium, how much will be the total Gain to Society 18Explanation / Answer
30. MC = dTC/dq = 36+6q
In the short run firm’s supply curve will begiven by P =MC.
P = 36+6q ; q = p/6 - 6 is the firms supply curve.
Market supply will be Q = 200*(p/6 -6)
Equate supply = demand.
Inverse demand : Q = 17800 -50p
17800-50p = 33.33p -1200
17800-1200 = 83.33p
P =199.20
Q = 16803.96
Consumer surplus = 0.5*(356-199.20)*16803.96 = 1317430.46= 1317(in thousand)
Producer surplus = 0.5*(199.20 – 36)*16803.96 = 1371( in thousand)
Total Surplus = 1317+1371 = 2688
Option J none of the above.
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