QUESTION 1 20 pointsSave Answer 1-(a) Dakota is a firm that produces rocking hor

Question

QUESTION 1 20 pointsSave Answer 1-(a) Dakota is a firm that produces rocking horses. The market for rocking horses is perfectly competitive. Dakota's cost function is C+40y +2450. The market price of rocking horses is p-140 The firm's optimal output is and the profit at the optimal level of output is QUESTION 2 10 points Save Answer 1-(b) What will happen to the number of firms in the rocking horse industry in the long run? The number of tims will lecrease The number of firms will remain unchanged The number of firms will increase QUESTION 3 20 pointsSave Answer 1-(c) Now consider the market for rocking horses in the long run. Dakota's level of output in the long run is and the profit is The market price is

Explanation / Answer

1) c(y) 1/2y2 +40y+2450

MC= 40 + y

MR= 140

MR=MC

140 =40+y

Y= 100.

TR= 100*140= 14000

TC= 1/2*10000 + 4000 + 2450

TC= 5000 +4000+2450= 11450

Profit = 14000-11450= 2550

So firms optimam output is 100 and the profit at the optimum level of output is $2550.

2) The answer is C-) Number of firms will increase.

Because the economic profit in short run attracts new firms to enter the industry. Therefore number of firms will increase.

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