10. Use the diagram below to answer the next three questions. a. What price and quantity will the firm in the diagram above produce? b. What's the socially-optimal price and quantity? c. In the absence of government intervention, will this firm produce too much or too little?
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However, I can provide some general guidance on how to answer these questions. a. The price and quantity that the firm will produce is typically determined by the point where the firm's supply curve intersects with the market demand curve. This is known as the Show more…
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3. Assume that the cost function for each firm and market demand are the same as given in problem 2, and answer the following questions. (a) Based on your answer to 2 (d), will some of the 6 firms stop producing this good or will more firms enter this industry in the long-run? (b) Add the long-run supply curve to the sketch you made for 2 (c) and indicate the long-run market equilibrium. (c) How many firms will there be in the long-run and how much of the good will be produced? What will the long-run price of the good be? (d) Based on the shape of the long-run supply curve, do you think production in this sector uses a scarce natural resource? What shape should the long-run supply curve have if there was “congestion”?
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