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Product G is sold in a perfectly competitive, constant-cost industry. Draw a side-by-side graph for product G showing the market in long-run equilibrium with an
Product G is sold in a perfectly competitive, constant-cost industry.
- Draw a side-by-side graph for product G showing the market in long-run equilibrium with an individual firm earning normal profit. Label each of the following:
- The market's equilibrium price (PE) and quantity (QE)
- The firm's profit-maximizing quantity (QE)
- How would it affect the quantity demanded if the government imposed a price floor below PE?
- The price of F, a complement for product G, decreases. Illustrate on your graph from part (a) the result of this in the short run.
- Label the new market price (P2) and new market quantity (Q2).
- Shade completely any profit or loss for the firm.
- The price of F decreased by 5 percent, while the quantity demanded of G changed by 20 percent. What is the cross-price elasticity of G and F?
- What happens to the productive efficiency of the firm in the short run as a result of the change described in part (c)?
- What will happen to the price of G in the long run? Explain.
- In long-run equilibrium, the individual firm produces 200 units of G. At that level of output, its total cost is $1,000. If the firm is earning normal profits, what must be the market price?
- The whole market from part (g) clears at a quantity of 2 million units in the long run. If the constant long-run supply would intersect the y-axis at $2 and the demand curve intersects the y-axis at $8, what is the consumer surplus?
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