Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please read the question carefully, it is different from previously posted. It may be similar but part b and c are totally different Please check

Please read the question carefully, it is different from previously posted. It may be similar but part b and c are totally different

Please check my answer, I have posted many times but most of the tutors just copy and paste the answer from different questions that look similar without reading all the questions.

Question:

Consider a competitive market for red lentils with 100 identical farmers in Horsham Victoria, a competitive market price of $5 and the following MC for each farmer:

C = $0.05

Also consider the following market demand function:

= 1000 40

a) Calculate the optimal level of production (in tonnes) for each farmer (show workings)

My answer:

The optimal level of production refers to profit maximation of the firm. For farmer to maximize profit,

P=MR=MC=$5

MC = $0.05Q

$5 = $0.05Q

Q = $5 / $0.05

Q = 100 tonnes The optimal level of production for each farmer is 100 tonnes b) Assuming 100 lentil farmers of equal size how many tonnes of lentils in total will be supplied in the entire market? (show all workings)

My answer

Total market quantity Q = Quantity produced by each farmer (q) x number of farmers (N)

= 100 tonnes x 100 farmers

= 10,000 tonnes

c) Consider that the government now imposes a 25% tax on producers, calculate

i) the new equilibrium level of output for each firm (hint - think about how this affects each farmer's marginal cost), and

My answer:

Imposes a 25% tax

MC = 1.25(0.05Q)

= 0.0625Q

P=MC

5=0.0625Q

Q= 5 / 0.0625

Q=80

ii) new total supply in the entire market (show all workings)

Total market quantity Q = Quantity produced by each farmer (q) x number of farmers (N)

= 80 tonnes x 100 farmers

= 8,000 tonnes

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Environmental And Natural Resource Economics

Authors: Thomas H Tietenberg, Lynne Lewis

10th Edition

1315523965, 9781315523965

More Books

Students also viewed these Economics questions

Question

Discuss the rule that aids in the interpretation of a contract.

Answered: 1 week ago

Question

2. What types of information are we collecting?

Answered: 1 week ago

Question

5. How quickly can we manage to collect the information?

Answered: 1 week ago

Question

3. Tactical/strategic information.

Answered: 1 week ago