Derivation of the short-run market supply curve/ Macroeconomics
1. In a constant-cost industry in which firms have U-shaped average cost curves, the long-run market supply curve is a horizontal sum of individual firms’ long-run supply curves. In this respect, the long-run market supply curve differs from the short-run market supply curve, which, in a constant-cost industry, will equal the horizontal sum of individual firms’ short-run supply curves. Why does the derivation of the long-run market supply curve differ from the derivation of the short-run market supply curve?
2. Consider the properties of production in the context of production of a single outputfrom two inputs.
a) Briefly explain why two different isoquants cannot intersect. Support yourexplanation with an appropriate diagram and with reference to the propertyof technical efficiency.
b) Briefly explain why it is quite possible that, at sufficiently high utilization of aparticular input, it would not be worthwhile to increase utilization furthereven if the price of the input were zero. Support your explanation with anisoquant map, ensuring the economic region of production is shown.
3. Consider the properties of long-run costs in the context of production of a singleoutput.
a) Use the quotient rule of differentiation to prove that AC (Q) = MC (Q) at the MES.
b) Let L (N) be the learning/experience curve and AC (Q, N) be long-run averagecost as functions of annual output Q and cumulative output N. AssumeAC(Q,N) is U-shaped for simplicity. Using an appropriate diagram for eachfunction, show the impact of an increase in N.
