Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose that, in the market for soft drinks (in litres): demand is given by P =30-0.3 Q ; and supply is given by P =

Suppose that, in the market for soft drinks (in litres):

demand is given by P=30-0.3Q; and

supply is given byP= 0.1Q.

(a)Explain why the equilibrium price and quantity is Pareto efficient. As part of your

explanation, you must explain what Pareto efficiency is and show that it fits this definition.

(b)Assuming that it is a perfectly competitive market, in the long run what would be the price of a product? Explain.

(c)Assume that it is a perfectly competitive market. Explain why the long run the demand curve faced by the firm is horizontal.

(d)In the long run, how is the long-run supply curve derived? What is the shape of the supply curve and what does it represent? i.e. Is it upward sloping/downward sloping/horizontal/vertical/all of the aforementioned? Explain. In your answer, you must explain the assumptions which drive the shape of the curve and what would happen if these assumptions are violated.

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

Risk Management And Insurance

Authors: Scott E Harrington, Greg Niehaus

2nd Edition

0072339705, 9780072339703

More Books

Students also viewed these Economics questions