Let the market demand for a product be described by P = 20 – 0.02*Q. The market supply curve is P = 10 + 0.03*Q.

  1. Let the market demand for a product be described by P = 20 – 0.02*Q. The market supply curve is P = 10 + 0.03*Q.

 

  1. Calculate the market equilibrium price and output under perfect competition.
  2. Determine consumer’s surplus at the market equilibrium. Determine producer’s surplus at the market equilibrium.
  3. Determine the arc elasticity of demand for a one dollar ($1.00) increase in the market equiibrium price (i.e., the price increases one dollar from the price you determined in part a).
  4. A single perfectly competitive firm operating in the market described above has the following average total cost curve: ATC = 0.8*Q. Determine the profit maximizing quantity for the firm. Determine the firm’s short run economic profit.

 

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