Answer:
For the price of $20 = $3,333.33
For the price of $21 = $3,500
Kindly go through the explanation for the other answers required.
Explanation:
(a)
C = q2 +wq = q2 + 10q
Firm's short run supply curve is its marginal cost (MC) schedule.
MC = dC / dq = 2q + 10
So, supply curve is: p = 2q + 10
Or,
q = (p - 10) / 2 = 0.5p - 5
Total industry supply, Q = 1,000 x q = 500p - 5,000
p = (Q + 5,000) / 500 [Industry supply curve]
When p = 20, Q = 500 x 20 - 5,000 = 5,000 [Number of diamonds supplied]
When p = 21, Q = 500 x 21 - 5,000 = 5,500
So, when P = 21, 500 more diamonds will be supplied.
(b)
(i)
If w = 0.002Q then
w = 0.002 x (1000q) [Since Q = 1000q]
w = 2q
C = q2 +wq = q2 + (2q)q = 3q2
So, MC = dC / dq = 6q
MC = 6 x (Q / 1000)
So, MC depends on Q.
(ii)
Long run supply schedule is when price = MC
p = 6q = 6 x (Q / 1000)
p = 3Q / 500 [Long run industry supply schedule]
(iii) When p = 20, Q = p x (500/3) = 20 x 500 / 3 = 3,333.33
(iv) When p = 21, Q = p x (500 / 3) = 21 x 500 / 3 = 3,500
(v) Short run supply curve is the positive part of MC.
p = 6q
Therefore, the SR supply curve is a straight line from origin, sloping upwards.
