Short run effect of government imposition of a lump sum tax

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Reference no: EM1315277

Q. Over an initial range of output marginal cost of widget production by the typical firm is constant; above which range it rises. The cost function of a typical firm is given by: TCi = 390 + 10qi for qi ≤ 50 = 390 + 10qi + 0.1(qi - 50)2 for qi> 50 Demand for widgets is given by: q = 1440 - 50p.

(a) Sketch the marginal cost curve for the typical firm.

(b) If eight identical firms operate competitively in the industry, illustrate what is the short run industry supply curve? Sketch it.

(c) Conclude short-run market equilibrium production also price.
(d) Is the equilibrium computed in (c) also long- run equilibrium? Why or why not?

(e) If market demand falls drastically to q = 700 - 50p, Illustrate what will be the short run equilibrium market production also price? Can you Conclude output for each individual firm in the short-run? In the long run illustrate what will happen to this industry under these demand conditions?

(f) Under the original demand condition, q = 1440 - 50p, Illustrate what will be the short run effect of government imposition of a lump sum tax per firm equal to 170? If this tax remains, Illustrate what will happen to equilibrium market production also price in the long run? Elucidate how many firms will survive in the long run?

Reference no: EM1315277

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