Re: dse micro

Posted by Prerna Rakheja on Jan 07, 2014; 4:09pm
URL: http://discussion-forum.276.s1.nabble.com/dse-micro-tp7584487p7584508.html

Hi Sandeep,

There is typo in the question you have typed out, the option (d) is 3 + epsilon.
http://economicsentrance.weebly.com/uploads/1/1/0/5/1105777/2012-option-a.pdf

Answer:
(a) When price is 3, demand = 27. Firm 2 would not want to operate while Firm 1 can only produce upto 5 units so the market wont clear.

(b) When price is 6, demand = 24. Firm 1 would want to supply all 5 units as profit increases with each unit produced. Firm 2 is indifferent and hence would supply the remaining 19 units. Therefore, market clears.

(c) When price is 6 - epsilon, demand = 24 + epsilon. Firm 1 would want to supply all 5 units as profit increases with each unit produced. Firm 2 would not want to operate. Therefore, market wont clear.

(d) When price is 3 + epsilon, demand = 27 - epsilon. Firm 1 would want to supply all 5 units as profit increases with each unit produced. Firm 2 would not want to operate. Therefore, market wont clear.

So answer will be b