Question
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
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