Suppose there are 1000 identical firms producing diamonds. Diamond miners receive the wage rate w. Assume that the short-run cost function for each diamond-producing firm is C(q) = wq + q2.
a. If w = 10, what is the supply curve of an individual firm? What is the market supply curve?
b. How many diamonds will the 1000 firms produce (in total) if the market equilibrium price is $25 and w = 10?
c. Assume w = 10 and that the market demand for diamonds is Q = 7000 – 100P. What is the short-run equilibrium price and (market) quantity?
d. Suppose public pressure for improving diamond mining conditions increases w to 13. How does this affect individual and market supply? How does this affect the equilibrium price and quantity of diamonds?
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This is the violation of the UNC Honor Code.
I am sorry for the spelling mistake. Matt, you have violated the UNC Honor Code and will thereby need to speak with me after our section tomorrow.
3 answers