De La Salle University

School of Economics
MIC1ECO
Term 2, AY 2022 - 2023
Dr. Angelo A. Unite
Assignment 9: Short-Run Partial Equilibrium in a Perfectly Competitive Market

1. This assignment is a group effort (minimum of 1 student and maximum of 2 students per group), and thus, there
should only be one set of solutions per group. You are not allowed to consult with nor be consulted by other students
currently enrolled in this course. A FINAL GRADE OF 0.0 WILL BE GIVEN TO THE STUDENTS WHOSE
REPORTS ARE PROVEN TO BE COPIES (IN FULL OR IN PART) OF EACH OTHER.
2. For each main problem (indicated by a Roman numeral), answer the sub-questions (indicated by an Arabic numeral)
in their order of appearance. Start answering each main problem (indicated by a roman numeral) in a new sheet. For
each main problem, be sure to indicate the number of the sub- question you are answering. Read the questions
carefully and answer only what is required. Do not make any assumptions other than those given in the problems.
3. Be sure to show the theoretical justification or basis for your answers to each question in this exam. You should start
each answer with a brief discussion of the basis for your answer. The basis is usually an economic concept, a
mathematical definition, or a set of conditions that provides the framework for your answer. Do not just turn in
computations! No explanation and basis, no credit.
4. Simplify all final answers. For final answers that involve numerical values, round off to the nearest 4 decimal places.
5. For questions that require you to determine the sign of derivatives or mathematical functions, be sure to show the
basis for the sign.
6. Your answers should be word processed (MSWord or Google Docs) on A4-size document with 1-inch (2.54 cm)
margins all around. You can generate equations using MathType in Google Docs or MS Word’s build-in Equation
Editor. Graphs can be generated using Mathematica, MSWord, or MSExcel.
7. NO SECTION OF YOUR ASSIGNMENT MAY BE HANDWRITTEN OR IN THE FORM OF SCANNED IMAGES.
Submissions with handwritten or scanned answers (in part or in full) will not be given any credit. Answers involving
equations that were not generated using MS Equation Editor or MathType will not be given any credit.
8. Type, sign and date the Pledge of Academic Honesty Pledge below and make it the cover page of your report.

Pledge of Academic Honesty

This is to certify that we did not consult with anyone, including copying the answered assignments of students who
took this course in previous trimesters, in arriving at our answers to this assignment in MIC1ECO. In addition, we
are certifying that we did not allow ourselves to be consulted by other students who are currently enrolled in this
course during their solving the same assignment. We are aware that a final grade of 0.0 will be given to the students
whose reports are confirmed to be copies (full or partial) of each other and students who violated this pledge.

__________________________________________________
Signature over printed name and date – Group Member 1

__________________________________________________
Signature over printed name and date – Group Member 2

9. Save your Word document in pdf format. The pdf file should be uploaded in AnimoSpace. Make sure that the
equations in the pdf file are in good order. Be sure that your group members signatures are on the pledge of academic
honesty. No signature/s, no credit.
10. The AnimoSpace facility for uploading of the pdf copy of your word-processed answers closes at 8:00 am of the last
day of submission specified in this syllabus (Schedule of Assignments). Submissions made outside the AnimoSpace
Assignment facility will not be accepted nor given any credit.
11. Any correction on the mark for this assignment must be brought up with my teaching assistant during the week when
the marked version of this assignment is returned to the students. After this one-week period, any correction on the
mark shall no longer be considered.
12. Any student may be asked to present and discuss his/her group’s solutions in class. The schedule of oral presentation
of answers to the assignments is given in the Learning Plan.
 START ANSWERING PROBLEM I IN A NEW SHEET

I. A competitive market has 90 firms with identical short-run cost function given by
𝑺𝑪(𝒒) = 𝟎. 𝟎𝟑𝒒𝟑 − 𝟎. 𝟗𝒒𝟐 + 𝟗𝒒 + 𝟓. Each firm sells its output at the given market price of p per unit,
where 𝒑 > 𝟎. Show the basis and briefly explain what is going on as you answer each of the following
questions. Your mark will depend on the correctness of your basis and brief explanation.
1. Write down the first order, second order, and profitability conditions for a maximum profit for
the above firm.
2. Using your results in part 2, write down the short-run supply function of a typical firm in this
market. Include the domain of this function.
3. What is the short-run market supply function? Include the domain of this function.
4. Suppose the market demand is 𝑸 = 𝟏, 𝟖𝟐𝟎 − 𝟏. 𝟐𝒑 where Q is the total quantity demanded when
the market price is p. When the market is in short-run equilibrium
a. What is the market price?
b. How much does a typical firm produce?
c. Is there any incentive for new firms to enter this market? Why or why not?
5. Suppose that the market demand shifts to 𝑸 = 𝟏, 𝟔𝟎𝟎 − 𝟏. 𝟐𝒑. When the market is in short-run
equilibrium
a. What is the market price?
b. How much does each firm produce?
c. What is the impact of the change in the market demand on the short run equilibrium market
price and market output? Explain why this impact on the short run equilibrium market price
and market output makes economic sense.

START ANSWERING PROBLEM II IN A NEW SHEET

II. There are currently 20 firms in a perfectly competitive market, each with a short run total cost of
production given by 𝑺𝑪(𝒒) = 𝟎. 𝟓𝒒𝟐 + 𝟒𝟎𝒒 + 𝟏, 𝟓𝟎𝟎 where q is the firm’s output level. Each firm sells its
output at the given market price of p per unit, where 𝒑 > 𝟎. Suppose the government imposes a specific
tax of t pesos per unit of output produced by the firm, where t > 0. Show the basis and briefly explain
what is going on as you answer each of the following questions. Your mark will depend on the correctness
of your basis and brief explanation.
1. Write down the first order, second order, and profitability conditions for a maximum after-profit
for a typical firm.
2. Using your results in part 2, write down the short-run supply function of a typical firm in this
market. Include the domain of this function.
3. What is the short-run market supply function? Include the domain of this function.
4. Suppose that the market demand is given by 𝑸 = 𝟏, 𝟐𝟎𝟎 − 𝟓𝒑, where Q is the market quantity
demanded when the market price is p. When the market is in short-run equilibrium,
a. What is the market price? Show the basis for your answer.
b. How much does a typical firm produce? Show and briefly explain how you arrived at your
answer.
c. Use comparative statics to determine how a change in the specific tax affects a typical firm’s
output.
5. Suppose the specific tax ₧5 per unit of output. When the market is in equilibrium,
a. What price will buyers pay and what price will sellers receive?
b. How much total tax revenue will government be able to collect?
c. Is there any incentive for new firms to enter this market? Why or why not?