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macroeconomy in expansion or contraction

There is a vast number of hog farmers in Canada. The Industry should be
a good approximation to a perfectly competitive market. The demand for processed pork in Canada is: The D should be subscript QD = 286-20p, where

QD = quantity of pork demanded in millions of kg per year
p = the price of pork in Canadian dollars per kg

The supply of processed pork in Canada is:
Qs = 88 + 40p, where
Qs = quantity of pork supplied in millions of kg per year

a) Determine the market equilibrium price in Canada dollars and the
market equilibrium quantity in millions of kg per year.

b) The supply curve for each hog farmer (its marginal cost function) is:
qs =.01 + .022

Given the equilibrium price you found in (a), how much output will each hog farmer produce? If your answer is small, it is because output is measured in millions of kg.

c) Assume average total cost for each producer is $2.90. Compute the dollar profit (or loss) that each farmer will earn on hog production.

d) Do you think there in an incentive for other farmers to enter the hog production business? Explain

Here is the second problem:

The consumption function for a simple economy with no government sector is:
C = $2 trillion + .75Y
Planned investment, I, is $1 trillion.

a) Find equilibrium GDP, Y*
b) Find consumption, C
c) Find savings, S, and show that the equilibrium condition, S= I, is satisfied
d) Assume this economy is operating at a Y of $12.5 trillion. Find change inv. (where I have change is a small triangle so the triangle is in front of inv). Is it positive or negative? What implications does this have for the future course of the macroeconomy? Is the macroeconomy in expansion or contraction? Explain

Solution Preview

a) Determine the market equilibrium price in Canada dollars and the market equilibrium quantity in millions of kg per year.

At the market equilibrium price, Qs = Qd, i.e,
286-20p = 88 + 40p
p = 3.3

b) The supply curve for each hog farmer (its marginal cost function) is: qs =.01 + .022 p
Given the equilibrium price you found in (a), how much output will each hog farmer produce? If your answer is small, it is because output is measured in millions of kg.

Substitute p = 3.3 into Qs=.01 + .022*3.3 = 0.0826

c) ...

Solution Summary

This posting assesses if macroeconomy is in expansion or contraction?

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