1. Perfect Competition The city of Econtown is home to 100 small, independent lawn service companies. Each company takes the price of mowing lawns as given and each has a cost structure (lawns mowed...

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1. Perfect Competition The city of Econtown is home to 100 small, independent lawn service companies. Each company takes the price of mowing lawns as given and each has a cost structure (lawns mowed per day) that is shown in the table below. a. Draw the Marginal Cost graph on the axes shown on the next page. Label the graph MC. Label the ‘shutdown price’ and the ‘breakeven price’ on the graph. b. OUTPUT CHOICE RULE: Suppose the market price is $47.50. What is the company’s profit-maximizing output at that price? Q= ___________ c. MINIMUM PROFIT RULE: Will the company operate at that profit maximizing price and quantity in the short run? If so, why? If not, why not? d. What will be the firm’s profit at the profit-maximizing quantity and price? Q= ______P= ________ e. How many lawns will be mowed per day across all firms in the industry and what will be their total profit? Equil market number of lawns _______ Profit across all firms ______________ f. What will the firm do if the price falls to $32.50? Why? g. What will the firm do if the price falls to $20.00? Why? h. What part of the firm’s MC curve represents the supply curve of the firm? 2. Monopoly In a monopoly market, demand is represented by P=1000-Q. The firm’s cost structure exhibits constant economies of scale (constant returns to scale) with the long run marginal cost and long run average cost equal to $400. a. What is the equation for the firm’s Marginal Revenue (MR) curve? [HINT: If demand is linear, the MR is also linear with the same vertical intercept and twice the slope.] b. On the axes below, draw a graph showing the market demand curve, the marginal revenue curve of the monopolist, and the LRAC. c. What is the firm’s profit maximizing output? Qm=_____________ d. What price will the firm charge? Pm = ______________ e. Now suppose the government breaks up the monopoly into numerous independent perfectly competitive firms. What will be the equilibrium price and quantity under perfect competition? Pc= ____________ Qc=______________ Which outcome is better for consumers: monopoly or perfect competition? Why? 3.Consumer Price Index Students at CSULB live a frugal existence, living in an apartment, eating frozen meals, and talking on the phone when they are not studying. The table below shows the expenditures of a student in 2015 and one in 2020. a.What is the total expenditure associated with the market basket in 2015? b.What is the total expenditure associated with the market basket in 2020? c.The base year for expenditures is 2010, at which time the market basket cost $1,000. Compute the following: oPrice index in 2010: ___________ oPrice index in 2015: ___________ oPrice index in 2020: ___________ d.How does the expenditure in 2020 compare with that of the base year? e.What is the rate of inflation between 2015 and 2020? Econ 300 Homework 4.docx/Page 1 QFCVCTCAFCAVCATCMC 0150.00$ -$ 150.00$ n/a-$ n/a 1150.00$ 47.50$ 197.50$ 150.00$ 47.50$ 197.50$ 47.50$ 2150.00$ 85.00$ 235.00$ 75.00$ 42.50$ 117.50$ 37.50$ 3150.00$ 115.00$ 265.00$ 50.00$ 38.33$ 88.33$ 30.00$ 4150.00$ 140.00$ 290.00$ 37.50$ 35.00$ 72.50$ 25.00$ 5150.00$ 160.00$ 310.00$ 30.00$ 32.00$ 62.00$ 20.00$ 6150.00$ 175.00$ 325.00$ 25.00$ 29.17$ 54.17$ 15.00$ 7150.00$ 187.50$ 337.50$ 21.43$ 26.79$ 48.21$ 12.50$ 8150.00$ 202.50$ 352.50$ 18.75$ 25.31$ 44.06$ 15.00$ 9150.00$ 222.50$ 372.50$ 16.67$ 24.72$ 41.39$ 20.00$ 10150.00$ 250.00$ 400.00$ 15.00$ 25.00$ 40.00$ 27.50$ 11150.00$ 282.50$ 432.50$ 13.64$ 25.68$ 39.32$ 32.50$ 12150.00$ 330.00$ 480.00$ 12.50$ 27.50$ 40.00$ 47.50$ 13150.00$ 395.00$ 545.00$ 11.54$ 30.38$ 41.92$ 65.00$ 14150.00$ 490.00$ 640.00$ 10.71$ 35.00$ 45.71$ 95.00$ 15150.00$ 625.00$ 775.00$ 10.00$ 41.67$ 51.67$ 135.00$ 16150.00$ 810.00$ 960.00$ 9.38$ 50.63$ 60.00$ 185.00$ ItemUnits20152020 Rent1$1,000$1,200 Frozen meals60$3$3 Phone service110060 EXPENDITURES PER MONTH Price per Unit