Macro Economics
Assignment 3 Question 1: Assume that apples are produced in a perfectly competitive market. Columbia’s Orchard is a typical firm that grows and sells apples. Currently, Columbia earns zero economic profit, and the market price of apples is $10 per basket. a) Draw a correctly labeled graph showing Columbia’s demand curve, average total cost curve, and marginal cost curve, and show the profit-maximizing quantity, labeled Qc. Answer: b) Suppose an increase in the popularity of apple, the demand for apple increases. How will the increase in the demand for apples affect Columbia’s economic profit in the short run? Explain. Answer: c) What will happen to Columbia’s economic profit in the long run? Explain. Answer: Question 2: The diagram below shows a monopolist’s MC and ATC curves as well as the industry demand and MR curves. a. What is the profit-maximizing price and level of output for the monopolist? Answer: b. What are the total profits for the monopolist? Answer: c. What area shows the deadweight loss to society resulting from the monopolist's output decision? Answer: d. Now suppose the industry' is made up of many small, price-taking firms (with the same technology). What are the equilibrium price and level of output in this case? Answer: e. Identify and explain minimum efficient scale in the above graph. Answer: Question 3: The situation facing by firm “Smart”, a producer of running shoes, is shown in the following figure. a. What quantity does Smart Shoes produce? Answer: b. What is the price of a pair of Smart shoes? Answer: c. What is Smart’s economic profit or economic loss? Answer: d. Why MR curve is below to demand curve? Answer: Question 4: In the market for running shoes, all the firms face a similar demand curve and have similar cost curves to those of Smart in question 3. a. What happens to the number of firms producing running shoes in the long run? Answer: b. What happens to the price of running shoes in the long run? Answer: c. What happens to the quantity of running shoes produced by Smart in the long run? Answer: d. What happens to the quantity of running shoes in the entire market in the long run? Answer: e. Does Smart shoes have excess capacity in the long run? Answer: f. Why, if Smart firm shoes has excess capacity in the long run, doesn’t the firm decrease its capacity? Answer: g. What is the relationship between Smart Shoes’ price and marginal cost? Answer: Assignment 3 Question 1: Assume that apples are produced in a perfectly competitive market. Columbia’s Orchard is a typical firm that grows and sells apples. Currently, Columbia earns zero economic profit, and the market price of apples is $10 per basket. a) Draw a correctly labeled graph showing Columbia’s demand curve, average total cost curve, and marginal cost curve, and show the profit-maximizing quantity, labeled Qc. Answer: b) Suppose an increase in the popularity of apple, the demand for apple increases. How will the increase in the demand for apples affect Columbia’s economic profit in the short run? Explain. Answer: c) What will happen to Columbia’s economic profit in the long run? Explain. Answer: Question 2: The diagram below shows a monopolist’s MC and ATC curves as well as the industry demand and MR curves. a. What is the profit-maximizing price and level of output for the monopolist? Answer: b. What are the total profits for the monopolist? Answer: c. What area shows the deadweight loss to society resulting from the monopolist's output decision? Answer: d. Now suppose the industry' is made up of many small, price-taking firms (with the same technology). What are the equilibrium price and level of output in this case? Answer: e. Identify and explain minimum efficient scale in the above graph. Answer: Question 3: The situation facing by firm “Smart”, a producer of running shoes, is shown in the following figure. a. What quantity does Smart Shoes produce? Answer: b. What is the price of a pair of Smart shoes? Answer: c. What is Smart’s economic profit or economic loss? Answer: d. Why MR curve is below to demand curve? Answer: Question 4: In the market for running shoes, all the firms face a similar demand curve and have similar cost curves to those of Smart in question 3. a. What happens to the number of firms producing running shoes in the long run? Answer: b. What happens to the price of running shoes in the long run? Answer: c. What happens to the quantity of running shoes produced by Smart in the long run? Answer: d. What happens to the quantity of running shoes in the entire market in the long run? Answer: e. Does Smart shoes have excess capacity in the long run? Answer: f. Why, if Smart firm shoes has excess capacity in the long run, doesn’t the firm decrease its capacity? Answer: g. What is the relationship between Smart Shoes’ price and marginal cost? Answer: