Subject: Economics / General Economics
ECON 340 Spring 2016 HW#41. Suppose Walter operates a local pharmacy in a perfectly competitive market. His variable costs represent the costs of acquiring chemicals and can
be expressed as T V C(Q) = Q2 ? 31 Q. He has to refrigerate his chemicals,
and the refrigeration cost $5 and is independent of the amount of chemicals
he purchases on a specific day. In addition he has to rent his storefront, and
he is contractually obligated to pay $50 regardless of whether he chooses
(a) What are Walter’s sunk fixed costs? What are Walter’s non-sunk
(b) Suppose the market price of pharmaceuticals is $20. How many pharmaceuticals will Walter produce?
(c) Suppose the market price of pharmaceuticals is $5. How many pharmaceuticals will Walter produce?2. Consider the perfectly competitive market for coffee. In the short run, a
coffee plantation has a cost curve of ST C(Q) = Q2 + 4Q + 8. Assume that
the fixed costs are non-sunk.
(a) At what price would the plantation choose to shutdown?
(b) What is the short-run supply curve for the coffee plantation?
(c) Suppose that the market demand curve is QD = 450 ? 3P and there
are 40 coffee plantations in the market. What is the short-run equilibrium price?3. For each of these outcomes, explain whether it will be the long-run equilibrium
(a) There are 20 firms each producing 10 units with T C(Q) = 41 Q2 ? Q
and P = 16
(b) There are 100 firms each producing 1 unit with T C(Q) = 31 Q3 ?Q2 +
3Q and P = 12
(c) There are 100 firms each producing 2 units with T C(Q) = 3Q3 ?
2Q2 + Q and P = 104. Consider the perfectly competitive labor market with labor demand LD =
100 ? 2W and labor supply LS = 20 + 2W
(a) Suppose the government implemented a minimum wage of $25. What
is the impact on average wages and unemployment?
(b) Show graphically the impact of imposing a minimum wage of $25
indicating the size of the deadweight loss
1 (c) Is there a minimum wage the government could set that would not
create a deadweight loss? Explain. 2