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Finding the long run and short run equilibrium parameters

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Suppose honey is produced in a beehive using bees and sugar. Each honey producer uses one beehive which she rents for $40/month. Producing q gallons of honey in one month requires spending 4q dollars bees, and 2q2dollars on sugar.

a)What is the total cost of producing q units of honey for an individual honey producer in a given month?

b) In general, if the total cost of producing honey is a + bq + cq2, then the marginal cost of producing honey is b + 2cq. Assuming each honey producer operates as a price-taker, what is the monthly supply curve for an individual producer?

c)Let Q be the total market supply, and q is the supply of an individual firm. Therefore, q = Q/n where n is the total number of firms in the market. Suppose the demand for honey is given by Q = 548-4P. Also, suppose there are 60 honey producers in the market. What is the equilibrium price of honey?

d)How much profit does an individual producer make in a month?

e) How many firms will there be in long run equilibrium? (Remember, a firm will enter the market as long as it can make a positive profit)

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Solution Summary

Solution depicts the steps to estimate the short run equilibrium parameters. It also analyzes the effect of short run profits on long run equilibrium and profitability.

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a) What is the total cost of producing q units of honey for an individual honey producer in a given month?
Total Cost, TC=Rental Cost+ Bees Cost+ Sugar Cost
TC=40+4q+2q2

b) In general, if the total cost of producing honey is a + bq + cq2, then the marginal cost of producing honey is b + 2cq. Assuming each honey producer operates as a price-taker, what is the monthly supply curve for an individual producer?
Marginal Cost=MC=dTC/dq=d(40+4q+2q2)/dq=4+4q
We can also use the information given in the question and directly get the Marginal Cost
Step 1 , Compare the given format with TC function and get the values of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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