Supply and Demand, and Labor
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1. The following table gives short-run and long-run total costs for various levels of output for a perfectly competitive firm:
Output (Q)SRTC AVC TR
0 350
1 400
2 425
3 465
4 505
5 560
6 635
7 730
Note: AVC is Average Variable Cos, TR is Total Revenue, SRTC is Short Run Total Cost, SRTC = FC + VC (Total Cost = Fixed Cost + Variable Costs)
a. Suppose the fixed cost (FC) of production is $350 and Price (P) is $55, complete the table above. (Cut and paste the table into a separate document).
b. Suppose you are producing 2 units of output (Q = 2), if you want to produce one extra unit of output (Q = 3), what would be the marginal cost? (Show your work.)
c. If the market price is given as $55, how much output will the perfectly competitive firm produce to maximize profits? (Show your work.)
d. Calculate the profit or loss. (Show your work.)
e. Should the firm always shut down in the short run when it experiences a loss? Explain.
2. Discuss two factors that would increase demand for labor.
3. If the market price of the good or service that a firm produces increases, what happen to the demand of labor? Explain.
4. Suppose that some government-sanctioned licensing requirements are lifted (removed) in a particular industry. What would happen to the wage in this market? Explain.
5. In general, do you think the government should intervene in the labor market?
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Solution Summary
This solution answers the question related with demand and supply.
Education
- MBA, Indian Institute of Finance
- Bsc, Madras University
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