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3. (7 points) Market demand is Qd={bap,0,p[0,a]p>a, a,b>0. There are n competitive firms in the market. For i=1,,n, firm i hires li units of labor
3. (7 points) Market demand is Qd={bap,0,p[0,a]p>a, a,b>0. There are n competitive firms in the market. For i=1,,n, firm i hires li units of labor at unit cost w>0, which yields qi=2li units of output. Here, (0,1) (a) Suppose that n=1. i. Find firm 1's supply as a function of p. (1 point) ii. Find the competitive equilibrium (p,q1) for any (0,1). (1 point) iii. Find the competitive equilibrium (p,q1) for =0.5. (1 point) (b) Suppose that n=3 and =0.5. Suppose further that firm 1 is given a subsidy on production, i.e., for each unit of output produced by firm 1 , the government gives s dollars to firm 1. i. For i=1,2,3, find firm i 's total cost, TCi(qi). (1 point) ii. Find the competitive equilibrium (p,q1,q2,q3). (1 point) iii. What is the effect of s on (p,q1,q2,q3) ? (2 points) 3. (7 points) Market demand is Qd={bap,0,p[0,a]p>a, a,b>0. There are n competitive firms in the market. For i=1,,n, firm i hires li units of labor at unit cost w>0, which yields qi=2li units of output. Here, (0,1) (a) Suppose that n=1. i. Find firm 1's supply as a function of p. (1 point) ii. Find the competitive equilibrium (p,q1) for any (0,1). (1 point) iii. Find the competitive equilibrium (p,q1) for =0.5. (1 point) (b) Suppose that n=3 and =0.5. Suppose further that firm 1 is given a subsidy on production, i.e., for each unit of output produced by firm 1 , the government gives s dollars to firm 1. i. For i=1,2,3, find firm i 's total cost, TCi(qi). (1 point) ii. Find the competitive equilibrium (p,q1,q2,q3). (1 point) iii. What is the effect of s on (p,q1,q2,q3) ? (2 points)
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