The market for

lobsters is perfectly competitive. Total cost for a firm that harvests q lobsters is given by TC = 800 + 1q2. The market demand for lobsters is QD = 2000 ? 5P.

1. 2.

3. 4.

2

Find the output by each firm, the market price and the number of firms in operation when the market is in long-run equilibrium.

Suppose now that the government imposes a $450 luxury tax on each firm, raising costs to TC = 1250 + 1q2. In the short run, where the number of firms is the same as

2

in (1), find the new short-run output by each firm along with the new market price. Calculate the profit or loss earned by each firm in (2). Will there be entry or exit?

Find the new long-run equilibrium. How much output does each firm produce? What are the market price and the number of firms in opera

The market for lobsters is perfectly competitive. Total cost for a firm that harvests q lobstersis given by TC = 800 + -q2. The market demand for lobsters is Q” = 2000 – 5P.1. Find the output by each firm, the market price and the number of firms in operationwhen the market is in long-run equilibrium.2. Suppose now that the government imposes a $450 luxury tax on each firm, raisingcosts to TC = 1250 + ;q2. In the short run, where the number of firms is the same asin (1), find the new short-run output by each firm along with the new market price.3. Calculate the profit or loss earned by each firm in (2). Will there be entry or exit?4. Find the new long-run equilibrium. How much output does each firm produce? Whatare the market price and the number of firms in operation?

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