question archive Use the space below and the back to write out and clearly indicate your answers
Use the space below and the back to write out and clearly indicate your answers
Subject:EconomicsPrice: Bought3
Use the space below and the back to write out and clearly indicate your answers. Do not use this sheet as scrap paper, but use it to neatly present your work. Williamston is known as a dining destination for connoisseurs of ?ne food. The demand curve for meals is given by Q" = 36 — P. In Williamston, there are three (price—taking) restaurants supplying meals, each with a long-run cost curve given by C (q) = 34.72. Each restaurant has a restaurateur's operating license issued by the city of Williamston, of which there are only three. While the ?rms behave as if the market is perfectly competitive, entry into the industry is restricted because there are only three licenses. This means that the pro?t from the business can be attributed to the operating license, so we'd like to calculate the value of a license. For each question, show your work. 1) Calculate each restaurant's AC function, their MC ?lnction, and the min AC. [3pts] 2) Calculate each restaurant's individual supply curve. [2pts]
3) Calculate the market supply curve. [1pt] 4) Calculate the market equilibrium price and quantity, and the quantity supplied by each restaurant. [3pts] 5) Calculate the profit that a restaurant makes in this market. [1pt] Profit is dissipated by the free entry of firms into an industry. When entry is restricted, firms can earn profit, even in the long run. The profit is due to a limited resource that costs nothing to produce, namely operating licenses. Profit that is really a return to a limited resource in excess of the cost of supplying the resource is called "rent."
