Answer to Question #53774 in Economics of Enterprise for Abdulaziz Mohammed

Question

Question2:

Widgets are provided by a competitive constant-cost industry where each firm has fixed costs of $30. The following chart shows the industry-wide demand curve and the marginal cost curve of a typical firm:

INDUSTRY-WIDE DEMAND FIRM’S MARGINAL COST CURVE
Price l Cost Quantity Quantity Marginal Cost
$5 1500 1 $5
10 1200 2 10
15 900 3 15
20 600 4 20
25 300 5 25
30 200 6 30
35 140 7 35
40 50 8 40

a.What is the price of a widget?

b. How many firms are in the industry?
For the remaining four parts of this question, assume that the government imposes an excise tax of $15 per widget.
c. In the short run, what is the new price of widgets?
d. In the short run, how many firms leave the industry?
e. In the long run, what is the new price of widgets?
f. In the long run, how many firms leave the industry?