Intermediate Microeconomics School of Economics Huazhong University of Science and Technology Homework 3 [Total Points = 100 pts.] Notes: . Full credit will be given only when (1) your answers are correct and (2) you explain the steps or reasoning behind your answers. . Due date: Thursday, Dec 27th 2018, in class and in hard copy 1. Suppose a profit-maximizing monopolist has total cost and marginal cost as follow: TC = 0.103 + Q + 10 and MC = 0.2 Q + 1. It faces the demand curve Q =35 - 5P. (35 points) a) What are the price, output, and profit for this monopolist? b) Carefully draw the diagram that illustrates your answers. c) What are the equilibrium price, output, and total profit if this is a perfectly competitive market? d) Compare the results between monopoly and perfect competition. e) Calculate the consumer surplus, producer surplus, and deadweight loss if the firm acts as a monopolist. Illustrate your answer with a diagram. f) Calculate the consumer surplus, producer surplus, and deadweight loss if this is a perfectly competitive market. Illustrate your answer with a diagram. (You can use the same diagram above.) g) Does the firm perform economic efficient in each market? Explain. 2. Assume that a firm is uncertain about the future demand for its product and is considering four alternative plant sizes. The short-run average cost curves for the four plan sizes are given by SACi (small), SAC (medium), SAC3 (large), and SAC4 (extra-large). Illustrate your answer in a figure how can the firm choose the optimal plan size to build according to different output level. And then derive the long-run average cost curve of the firm. (20 points)5. Consider two interdependent markets for coffee and tea. A recent study estimated the following supply and demand functions: QCD=153PC+ PT and Q03: 2+PC QT=62PT+PC and QTs=1+PT where QCD and ch refer to quantities of coffee demand and supplied, QTD and QTs refer to quantities of tea demanded and supplied, PC is the price of coffee, and PT is the price of tea. a. Calculate the equilibrium price and quantity that will prevail in both the tire and gasoline markets. b. Assume that an import restriction on coffee import causes the supply curve coffee to shift leftward as follows: QC = PC Calculate the initial impact of this change in supply on coffee and ta markets. (You need calculate only one change in P and Q for each market.) c. Discuss the changes that will occur after the initial round to move each market back to a stable equilibrium. Your answer to part (c) requires no calculations, but graphs would help convey your understanding of the process