Reference no: EM133519718

Consider a retail firm that produces and sells fashion accessories including silver-plated bracelets. This firm is one of many firms participating in a highly competitive national market for silver-plated bracelets. The market price for silver-plated bracelet is $32 and the market is in equilibrium. Firms in the market and potential entrants have the same cost structure, and the current market quantity is 48,000 bracelets. At this firm, the cost of labor and materials used in production is described by the equations: MC = 2 + 0.1q and AVC = 2 + 0.05q. In addition to these costs, the firm faces a cost of $2000 for its machinery and equipment.

1. What is the quantity of silver-plated bracelets traded at the firm? (report your numerical answer at 4 decimal places)

2. What is the profit from the quantity of silver platted bracelets traded?

3. How many firms are currently operating in the market for silver plated bracelets?

Now consider that lower input prices led to an increase in the supply of leather bracelets, a substitute consumption good. In the market for leather bracelets, the market price, and quantity of leather bracelets traded changes, and this impacts the competitive market for silver-plated bracelets.

As a result of this shock, the market for silver-plated bracelets adjusts in the short run.

Given the expected market adjustments in the short run,

1. What is the current market quantity?

2. Consider that there are no further external shocks to the market for silver- plated bracelets, and the retail firm remains in the market as the market adjusts in the long run. Given the current firm and market conditions anticipated in the long run, what is the lowest price at which the retail firm will remain in the market.