- a. In 2009, the Japanese beer industry was affected by two economic
events: (1) Japan’s government imposed on producers a tax on all
beer sold, and (2) consumer income fell due to the continuing
economic recession. How would each factor affect (i.e., shift)
demand or supply? What impact do you predict on industry output
and price?
b. In 2011, the U.S. trucking industry faced the following economic
conditions: (1) At last, the US economy was recovering from a
prolonged slump (during which trucking had shrunk its capacity by
14%), (2) the government instituted new regulations imposing more
frequent equipment inspections and restricting operators’ daily
driving hours, and (3) year over year, diesel fuel prices were up by 9
percent. For each separate effect, show whether and how it would
shift the industry demand curve or supply curve. What overallimpact
do you predict on industry output (measured in total volume and
miles of goods transported) and trucking rates? - The Green Company produces chemicals in a perfectly competitive market.
The current market price is $40; the firm’s total cost is C 100 4Q Q^2.
a. Determine the firm’s profit-maximizing output. More generally, write
down the equation for the firm’s supply curve in terms of price P.
b. Complying with more stringent environmental regulations increases
the firm’s fixed cost from 100 to 144. Would this affect the firm’s
output? Its supply curve?
c. How would the increase in fixed costs affect the market’s long-run
equilibrium price? The number of firms? (Assume that Green’s costs
are typical in the market.) - In a competitive market, the industry demand and supply curves are P
200 .2Qdand P 100 .3Qs, respectively.
a. Find the market’s equilibrium price and output.
b. Suppose the government imposes a tax of $20 per unit of output on all
firms in the industry. What effect does this have on the industry supply
curve? Find the new competitive price and output. What portion of the
tax has been passed on to consumers via a higher price?
c. Suppose a $20-per-unit sales tax is imposed on consumers. What effect
does this have on the industry demand curve? Find the new competitive
price and output. Compare this answer to your findings in part (b). - In a perfectly competitive market, industry demand is given by Q
1,000 20P. The typical firm’s average cost is AC 300/Q Q/3.
a. Confirm that Qmin30. (Hint:Set AC equal to MC.) What is ACmin?
b. Suppose 10 firms serve the market. Find the individual firm’s supply
curve. Find the market supply curve. Set market supply equal to
market demand to determine the competitive price and output. What
is the typical firm’s profit?
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