Suppose honey is produced in beehive using bees and sugar. Each honey producer u

Question

Suppose honey is produced in beehive using bees and sugar. Each honey producer uses one beehive which she rents for $1/month. Producing q gallons of honey requires spending q dollars on bees and q^2 on sugar. 1. What is the Total cost of producing q units of honey for an individual honey producer? 2. What is the Average cost of producing q units of honey per/month for an individual producer? 3.In general if the toal cost of producing honey is a+bq+cq^2 then the Marginal cost of producing honey is b+2cq. Assuming each honey producer operates as a price taker what is the supple curve for an individual producer? 4. Let Q be the total market supply and q is the supply of an individual firm, therefore q=Q/n where n is the total number of firms in the market.Determine the expression for the market supply curve. 5. Suppose the demand for honey is Q=45-p. ALso there are 20 producers inthe market. What is the equilibrium price for honey. 6 How much profit does and individual producer make? and is this a long run equilibrium?

Explanation / Answer

1) Total Cost = $1 + $q + $q^2

2) Average Cost = Total Cost/q = $1/q + $1 + $q

3) Supply curve = b+2cq

(MC Curve is the supply curve)

4) Market supply curve = (sum over n firms) b+2cq = bn + 2cQ

5) equilibrium price = 45-Q

6) Profit by an individual firm = (45-Q)*Q/20 - ($1 + $Q/20 + ($Q/20)^2)

Marginal Cost = $1/20 + $Q/10

as MC is not equal to price, it is not in long rum equilibrium.

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