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Microeconomics: Pricing and output decisions in Short run

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1. If a representative firm with total cost given by TC = 20 + 20q + 5q2 operates in a competitive industry where the short-run market demand and supply curves are given by QD = 1,400 - 40P and QS = -400 + 20P, the number of firms operating in the short run will be:

2. If the profit-maximizing markup price is marginal cost times 2, the elasticity of demand must be:

3. A representative firm with short-run total cost given by TC = 50 + 2q + 2q2 operates in a competitive industry where the short-run market demand and supply curves are given by QD = 1,690 - 40P and QS = -390 + 20P. Its short-run profit-maximizing level of output is:

4. The XYZ Steel Company produces its own coal for use in its production facility. The demand for steel is given by Ps = 500 - 2Qs and the total cost of producing steel is given by TCs = 100Qs, where Qs is tons of steel per week. The price of coal in a perfectly competitive market outside the firm is $250 per ton, and the total cost of producing coal is given by TCc = 40 + 5Qc2, where Qc is tons of coal per week. How much steel should the XYZ Company produce?

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Solution Summary

This post solves four different microeconomics problems related to market structure and pricing. First, problem shows how to calculate the number of firms operating in an industry in short run, second problem is about profit maximizing mark up pricing, third one is on short run profit maximizing output in a competitive market and the last one is about profit maximizing output.

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Intra-firm pricing
1. If a representative firm with total cost given by TC = 20 + 20q + 5q2 operate in a competitive industry where the short-run market demand and supply curves are given by QD = 1,400 - 40P and QS = -400 + 20P, the number of firms operating in the short run will be:

A representative firm is a competitive firm will be a price taker firm. First, calculate the equilibrium price in the market by equating the demand and supply
QD=QS
1400-40P=-400+20P
60P=1800
P=30
Q=1400-40*30=200
For profit maximization: MC=MR=P
MC=dTC/dq = 20+5*2q=20+10q
Equating MC=MR, we get
20+10q=30
10q=10
q=1
Number of firms operating in the industry = Q/q = ...

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