Assume the demand for beef is given by Qd = 22 + 0.1 Y – 10Pb + 5 Pc And the supply of beef is given by: Qs = -400 + 500Pb – 200 Pf where Qd denotes quantity of beef demanded, Qs denotes quantity supplied, Pb denotes price, of

Assume the demand for beef is given by



Qd = 22 + 0.1 Y – 10Pb + 5 Pc



And the supply of beef is given by:



Qs = -400 + 500Pb – 200 Pf



where Qd denotes quantity of beef demanded, Qs denotes quantity supplied, Pb denotes price, of beef, Y denotes per capita income, Pc denotes the price of chicken, and Pf denotes the price of feed used for growing beef.

Assume further that:

Y = $10,000

Pc = $2.00

Pf = $1.00

a. What is the equilibrium price and quantity of beef?

b. What is the point price elasticity of demand for beef when its price is equal to $4.00, using the demand curve you derived to answer (a) above.

c. If the price of chicken increases to $3.00, what happens to the demand curve for beef? What is the equilibrium price and quantity of beef?

d. Compute the cross elasticity of demand and indicate whether beef and chicken are substitutes or complements.



3. Company X produces widgets. If it produces 50 widgets per day, its average variable cost is $600 per widget, its average total cost is $1000 per widget, and its marginal cost is $700 per widget. Based on the above information:



Determine average fixed costs when the firm produces 50 widgets per day.
Determine average total and variable costs for producing 49 widgets.
Determine whether the average variable and average total cost curves are rising or falling between production of 49 and 50 widgets per day.
If the price per widget is $800, will the firm decide to maintain production at its current rate, increase it, decrease it, or shut down in the short run? Explain your answer.


4. Answer each of the questions below. Provide a brief explanation to support your answer.

a. Which type of firm faces the most elastic demand curve?

b. In which of market structures are firms able to earn both accounting and economic profits in the long run?

c. Why are firms in (perfectly) competitive markets assumed to be more efficient than firms in other market structures?

d. In what market structure is the firm’s demand curve the same as the industry demand curve?

e. Why do monopolistically competitive firms end up with zero economic profit in the long run even if price is above marginal cost?