The Copperbelt University SCHOOL OF HUMANITIES AND SOCIAL SCIENCES BEC 210: INTERMEDIATE MICROECONOMICS Assign. 2 Part-time studies Instructions: Answer all the questions. 29th January, 2020. 17:30hrs. Question one A perfectly competitive industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at an output of 20 units (qi) =20. The minimum average cost is $10 per unit. Total market demand is given by 𝑄 = 1,500 − 50𝑃 a. What is the industry’s long-run supply schedule? (2 marks) b. What is the long-run equilibrium price (p*)? The total industry output (Q*)? The output of each firm (O*)? The number of firms? The profits of each firm? (8 marks) c. The short-run total cost function associated with each firm’s long-run equilibrium output is given by 𝐶 (𝑞) = 0.5𝑞2 − 10𝑞 + 200 Calculate the short-run average and marginal cost function. At what output level does short run average cost reach a minimum? (3 marks) d. Calculate the short-run supply function for each firm and the industry short-run supply function. (2 marks) e. Suppose now that the market demand function shifts upward to Q =2,000 - 50P. Using this new demand curve, answer part (b) for the very short run when firms cannot change their outputs. (5 marks) f. In the short run, use the industry short-run supply function to recalculate the answers to (b). (3 marks) g. What is the new long-run equilibrium for the industry? (2 marks) 1 Question 2 Let the demand function for an industry’s output be 𝑄 = 50 − 5𝑃, where P is price and Q is output. Assume constant cost of K6 per unit of output. i) ii) iii) How much would a profit maximising monopolist produce? What would be the equilibrium price? (5 marks) Now assume that commodity is produced by a public sector undertaking which follows the marginal cost principle. What would be the optimal quantity produced. (5 marks) Compare and contrast the equilibrium of a firm under a perfectly competitive market and that of a monopoly. (hint use graphs where possible) (15 marks). ~~~~~~~~~~~~~~~~~~~~~~~GOOD LUCK~~~~~~~~~~~~~~~~~~~ 2
