Exam 14: Equilibrium and Efficiency

The market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,where both quantities are measured in millions of gallons per year.What is the producer surplus at the competitive market equilibrium?

Aggregate surplus:

The short and long run market supply curves:

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is Q^s_MMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is Q^s_MCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33.In this case,the market supply curve for milk is:

The market supply curve for a product:

Suppose Julia and Zach are the only consumers of milk.Julia's demand for milk is defined as Q^d_Julia = 12 - 3P at prices below $4 and zero for prices above $4.Zach's demand for milk is defined as Q^d_Zach = 10 - 2P at prices below $5 and zero for prices above $5.In this case,the market demand curve for milk is:

The market demand curve for a product:

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,the short run market supply function is:

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.How many total active firms are in the market in the long run due to the increased demand?

Properties of long-run competitive equilibrium with free entry include:

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,how much does each of the active firms produce in the short run equilibrium?

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is Q^s_MMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is Q^s_MCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33.At a price of $0.45:

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.What is the new long-run equilibrium price?

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is Q^s_MMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is Q^s_MCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33.At a price of $0.45:

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the market equilibrium quantity?

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the market equilibrium price?

Each of the following is implied if we say that transactions costs are absent EXCEPT:

Characteristics of a perfectly competitive market include:

Aggregate surplus:

Characteristics of a perfectly competitive market include: