QUESTION 1. Cost of Production, Profit Maximization, and Competitive Supply

The demand and supply of ice cream at industry level are given as follows: _d = 8000 - 200, and _s = 800 + 1000. While cost function for each firm producing ice cream is () = 1000 + (q²/100). If all firms in the industry are identical, and the ice cream industry exhibits a competitive industry, then

a. Find the industry's equilibrium price and quantity produced (in number of cups)! And also find the

profit obtained by each ice cream firm!

b. Will there be new ice cream firms entering the industry or may there be old ice cream firms exiting

the industry in the long term? Explain your answer and use graphical analysis to support your

answer. Explain also the impact of that entry/exit action at industry and firm levels!

c. If the ice cream price decreases to $4, will firm in the industry still produce ice cream in the short

term? Please Explain. If firm in the industry still produces ice cream, how many cups will each firm

produce?

d. What is the minimum price that is tolerated by firm in order to stay in the industry?

QUESTION 2. The Impact of Government Policy on Competitive Market

At the start of the COVID-19 pandemic, the Indonesian government temporarily eliminated import tariffs on disposable (single use) surgical masks. As a result, the domestic demand for disposable surgical masks were fulfilled by domestic production and imports. By July 2020, 99 million surgical masks valued at Rp400 billion were imported to Indonesia (Kompas, 16 July 2020). That same month, industry representatives asked the government to restore the import tariff on surgical masks. Assume that if the tariff is restored, there will still be import of surgical masks.

a. Explain the possible welfare impact of restoring the import tariff for surgical masks. Should the government impose an import quota instead? Explain your answer and use a graph to support your arguments.

Assume that the domestic demand for surgical mask in Indonesia (in million units) is _d = 210 - 2; the domestic supply in Indonesia (in million units) is _s= -100 + 600; the world price is $0.40, and there are no barriers to trade. Calculate:

b. The quantity of domestic consumption, production, and import of masks!

c. The welfare impact of an import tariff of $0.05 per unit of surgical mask - explain in detail who gains, who loses, and by how much!