The handmade snuffbox industry is composed of 100 identical firms, each having s
ID: 1201977 • Letter: T
Question
The handmade snuffbox industry is composed of 100 identical firms, each having short-run total costs given by STC = 0.5q^2 + 10q + 5 The short-run marginal costs are given by SMC = q + 10 where q is the output of snufiboxes per day. a) What is the short-run supply curve for each snufibox maker What is the short-run supply curve for the market as a whole? b) Suppose the demand for total snuffbox production is given by Qd = 1100 - 5OP What is the equilibrium in this marketplace9 What is each firm's total short-run profit? c) Graph the market equilibrium and compute total producer surplus in this case. d) Suppose now the government imposed a $3 tax on snufibox. How would this tax change the market equilibrium? e) How would the burden of this tax be shared between snufibox buyers and sellers? f) Calculate the total loss of producer surplus as a result of taxation of snuffbox. g) Calculate the deadweight loss if $3 tax is imposed.Explanation / Answer
STC=0.5q2+10q+5
SMC=q+10
to get the short run cost curve we set P=MC
P=q+10
q=P- 10
In the short run, the firm's supply curve is its MC curve above AVC
thus q=p -10 represents the short run supply curve of firm
for market
q=100(p-10)
answer b)Q=1100-50p
thus at equilibrium
Q=P
1100-50p= 100p-1000
1100-1000=100p-50p
100=50p
p=2
q=1100-50*2
=1100-100
=1000 for market
for a firm i
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