W2010 Solution To Evaluation 3 ECO100 February 18 2011

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 Essay about W2010 Way to Test a few ECO100 February 18 2011

Division of Economics

University of Toronto

Prof. Gustavo Indart

February 18, 2011

ALTERNATIVES

ECO 100Y

INTRODUCTION TO ECONOMICS

Midterm Test # several

LAST NAME

1ST NAME

PUPIL NUMBER

GUIDELINES:

1 .

2 .

3.

The whole time for this test can be 1 hour and 50 moments.

Aids allowed: a simple calculator.

Write with pen instead of pencil.

DO NOT WRITE IN THIS SPACE

Portion I

1 .

/10

2 .

/10

three or more.

/15

5.

/15

Portion II

/30

TOTAL

/80

Page one particular of 12

PART My spouse and i

(50 marks)

Instructions: Answer all four queries in the space provided. 1 . (10 marks) Consider a correctly competitive, constant cost industry with " n” similar firms. The diagrams under depict the market demand and short-run source curves in this industry and the ATC and MC curves of a representative firm — Lalinda Business. This sector is initially in long-run equilibrium.

Market

P

Lalinda Co.

one hundred twenty

ATC

money

S

one hundred twenty

S'

90

100

eighty

LRS

70

60

LRS'

60

ATC'

MC

MC'

40

40

D

twenty

20

5

6

8 9

doze

16

Variety in a large number of units a month

4

almost eight

10 eleven 12

16

Quantity in units per month

a) Show in the diagram above the industry's equilibrium cost and result and Lalinda's equilibrium output. Draw the industry's long-run supply shape (LRS). (1 mark) Precisely the number of organizations in this flawlessly competitive market? Briefly explain. (1 mark) Since market equilibrium are at P sama dengan $80 and Q = 6, 000 units with P sama dengan $80 a firm's output is 12 units (i. e., q = 10 at S = MC), then the range of firms in the market is Q/q = 6th, 000/10 = 600.

Since the industry is at long-run sense of balance, then every firm can be making zero economic income and generating at the minimum from the LRAC shape. (Note which the LRAC is definitely not proven in the plan above. ) Since this is a constant price industry, then a LRS is usually horizontal in the level of the minimum LRAC, i. electronic., at G = $80.

b) Lalinda Co. invents a new process that minimizes the cost of development by $20 per product at all amounts of output. Lalinda patents this new process, hence preventing various other firms from using the new technology. In the growing process, which of the curves within your diagram over will be afflicted with this lowering of Lalinda's costs of development? Briefly clarify. (1 mark) Draw the new curves inside the above diagram. (1 mark)

Since Lalinda reduces the expense of production in any way levels of output, then Lalinda's MC and ATC figure shift down by 20 dollars at all levels of output. This can be shown in the diagram above. Since this is actually a perfectly competitive industry, all of the changes in Lalinda's cost schedule and the matching change in Lalinda's supply competition have a negligible influence in the industry as a whole — and thus the sector S and LRS curves are not damaged in the growing process.

Page a couple of of doze

c) What are the results in the short run? What is the industry short-run equilibrium price? (1 mark) What is the amount of Lalinda's output in the new short-run equilibrium? (1 mark) What happens to Lalinda's profits from this new balance? Briefly make clear. (1 mark) As mentioned above, due to the fact that this is a perfectly competitive organization (and therefore there is a large numbers of firms in the industry), zero firm can affect by itself the marketplace equilibrium price. Therefore , value remains by $80.

Since Lalinda's MC curve changes down as well as the MC curve above the minimum of the AVC represents the firm's supply curve, Lalinda's supply improves and at S = $80 Lalinda now produces 11 units of output (i. e., queen = 14 at P = MC').

Since S remained continuous but Lalinda's ATC decreased, then Lalinda is now producing positive financial profits (i. e., by q sama dengan 11, P > ATC'). This can be seen in the plan above.

d) What happens in the long term when the obvious expires and also other firms have time to use the brand new technology? In short , explain. Draw the new LRS curve (LRS'). (1 mark) What are the industry cost and output in the new long-run sense of balance? (1 mark) What are...

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