Eco550 - Assign2

In: Business and Management

Submitted By tes5061
Words 278
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Office building maintenance plans call for the stripping, waxing, and buffing of ceramic floor tiles. This work is contracted out to office maintenance firms, and both technology and labor requirements are very basic.

Supply and demand conditions in this perfectly competitive service market in New York are:

QS = 2P - 20 | (Supply) | | | QD = 80 - 2P | (Demand) |

- where Q is thousands of hours of floor reconditioning per month, and P is the price per hour.

A. | Algebraically determine the market equilibrium price/output combination.To find price at equilibrium, set Qs = Qd. Qs = Qd 2P – 20 = 80 – 2P 4P = 100 P = $25 at equilibriumTo find the output at equilibrium, substitute $25 for P in both Qs and Qd equations. Qs = 2P – 20 = 2(25) – 20 = 50 – 20 = 30Qd = 80 – 2P = 80 – 2(25) = 80 – 50 = 30Qs = Qd 30 = 30 | | | B. | Use a graph to confirm your answer. |

For the graph, use prices: 10, 20,30,40,50,60,70,80,90 and Quantities:5,10,15,20,25,30,35,40,45,50,55,60,65

The figure below shows a firm in a perfectly competitive market:

a. Find the price below which the firm will go out of business.

If price fall below minimum of AVC, which is equal to P2 in the short run, the firm will go out of business.

b. What is the firm’s long run supply curve?

The firm’s long-run supply curve is the portion of the MC curve that lies above AVC, and zero below the minimum of AVC (in a perfectly competitive market). Therefore, the supply curve is the portion of MC curve above point B, C, and…...

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