Question Description

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

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. Findthe market equilibrium price and quantity. [1 mark]

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

d. Determine total industry surplus at the equilibrium. [2 marks]

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