Explore BrainMass

Short and long run equilibrium analysis

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Currently 10 identical bakeries are producing bread in a competitive market. The cost function for a typical bakery is:
Ci = 6qi + 0.01qi2 + 100.
The demand for bread is:
q = 1800 - 100p

(a) What is the short run market supply curve?

(b) What will be the equilibrium price and volume of bread sales in the market?

(c) At the equilibrium of (b) what is the output per bakery? Are bakeries incurring losses, making profits, or breaking even?

(d) The government imposes a $1 per loaf tax on bread (let them eat cake!). In the short
run what will be market volume and price, and output per bakery? Will individual
bakeries suffer a short-run loss, and if so, how much?

(e) What will be the long run response of market price and volume to imposition of the $1 per loaf tax? How many bakeries will remain, and what will be output per bakery?

© BrainMass Inc. brainmass.com October 24, 2018, 11:59 pm ad1c9bdddf


Solution Preview

Solution is also attached as word document.


(a) What is the short run market supply curve?

Ci = 6qi + 0.01qi2 + 100
Marginal Cost = MCi = dCi/dqi =6+0.02qi
In perfect competition p=MC
qi = -300+50p
Market supply curve

(b) What will be the equilibrium price and volume of bread sales in the market?

For equilibrium Qd=Qs


Equilibrium price =$8

Equilibrium quantity = 1000

(c) At the equilibrium of (b) ...

Solution Summary

Solution describes the steps for finding short run equilibrium volumes and prices for identical bakeries. It also analyses the impact of tax on loaf of bread.

See Also This Related BrainMass Solution

Market Structure: Perfect Competition

Draw graphs showing a perfectly competitive firm and industry in long-run equilibrium.
a). How do you know that the industry is in long-run equilibrium?

b). Suppose that there is an increase in demand for this product. Show and explain the short-run adjustment process for both the firm and the industry.

c). Show and explain the long-run adjustment process for both the form and the industry. What will happen to the number of firms in the new long-run equilibrium?

View Full Posting Details