Flour Tortillas in Denver

Assume that the industry for flour tortillas in Denver is perfectly competitive. There are 200 firms. 75 of the firms are “high-cost,” with short-run supply curves QHC = 5P, while the others are “low-cost,” with short-run supply curves QLC = 8P. Quantities are measured in dozens of tortillas and prices in dollars Answer the following questions: Flour Tortillas in Denver

 

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a. Derive the short-run industry supply curve for tortillas [2 marks]

b. Assume the market demand curve for tortillas is given by QD = 10,000 – 625P. Find the market equilibrium price and quantity. [1 mark]

c. At this price, how many dozens of tortillas are produced by the high- and low-cost firms, respectively? [2 marks]

d. Determine total industry surplus at the equilibrium. [2 marks]  Flour Tortillas in Denver

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