Students use pencils or pens to take notes and to write papers on lined paper. P
ID: 1209732 • Letter: S
Question
Students use pencils or pens to take notes and to write papers on lined paper. Paper manufacturers make lined and unlined paper at the same facilities. Explain what should happen to the equilibrium price and equilibrium quantity of lined paper when the price of pencils fall and the cost of paper rises. Poindexter Inc, is in a perfectly competitive industry. The market price of its product is $6.00 while its per unit costs of production are $5.87. Poindexter notices that if production increases, its per unit costs increase. Is Poindexter currently in long-run equilibrium? Explain. The EPA estimates the costs of emissions of heavy metals from electric power plants to be $1 billion per year in terms of health and environmental effects. The EPA proposes new emissions standards for electric power plants that dramatically reduce the emissions of heavy metals. The estimated expenses of meeting those new standards is $0.5 billion dollars. The industry argues that the expenses of meeting the new emission standards are entirely passed onto consumers in the form of a 10% increase in electricity rates, so the standards should not be enacted in order to save consumers the costs of meeting the standards. Under what conditions (if any) will the expenses of meeting the new standards be entirely passed onto consumers? Are the utilities correct that consumers will have lower costs if the standards are not implemented? ExplainExplanation / Answer
1. Pencil and paper are complements. Therefore a fall in price of pencil leads to increase in demand for paper and due to which demand increases and price increases. Due to increase in cost the price increases and quantity demanded falls. Therefore, there is an increase in the price while the quantity demanded may increase or decrease.
2. No, he is not in the long run equilibriu because in the long run in a perfectly competitive market P=Mc and firms earn normal profit or zero economic profit.
3.