a) Following question 10, if ATC=6 and AVC=3 at the Q* where each firm produces in question 10, Does this firm produce in the SR?

Does this firm produce in the LR?

Firm produces in SR, Firm produces in LR

Firm produces in SR, Firm exits in LR

) Firm shuts down in SR, Firm exits in LR

b) Let the supply and demand curve for a perfectly competitive market be as follows,

Q_s=30+2P

Q_d=50-3P

What is the price that the producer receives and the price that the buyer pays if a $3 tax is imposed in this perfectly competitive

market? What is the quantity?

Seller receives 11/5, Buyer pays 26/5, Quantity 34.4

Seller receives 11, Buyer pays 26, Quantity 34

) Seller receives 4, buyer pays 7, quantity 38

c) Let the supply and demand curve for a perfectly competitive market be as follows,

Q_s=30+2P

Q_d=50-3P

What is the price that the producer receives and the price that the buyer pays if a $2 subsidy is imposed in this perfectly

competitive market?

Seller receives 16/5, buyer pays 26/5 and quantity is 40

Seller receives 26/5, buyer pays 16/5 and quantity is 40.4

Seller receives 26, buyer pays 16, quantity=30

d) Third degree price discrimination

A monopolist engages in third degree price discrimination. There are 2 types of consumers, and the monopolist wants to sell to

both groups. The monopolist is allowed to charge different prices and hence engages in third degree price discrimination. The

demand curve for each group (the entire group) is as follows

Q_1=500-10P_1

Q_2=200-5P_2

The total cost function is

TC=2000+100

What price does this firm charge to each group and what would be the price if the monopolist was mandated to charge the same

price to both groups?

P1=25, P2=25, Price homogeneous=30

P1=35, P2=30, Price homogeneous=425/15

P1=30, P2=25, Price homogeneous=425/15

P1=30, P2=25, Price homogeneous=28