In the widget industry, each firm has fixed costs of $10 and faces the following marginal cost curve:
Quantity Marginal Cost
1 ............... $2 per widget
2 ............... 4
3 ............... 5
4 ............... 7
5 ............... 11
6 ............... 13
The industry-wide demand curve is given by the following chart:
Price Quantity___
$2 ............... 60 per widget
4 ............... 48
5 ............... 36
7 ............... 24
11 ............... 12
13 ............... 0
Assume the industry is in long-run equilibrium.
a. What is the price of a widget?
b. What quantity is produced by each firm?
c. How many firms are in the industry?
Now suppose that the demand curve shifts outward as follows:
Price Quantity___
$2 ............... 96 per widget
4 ............... 84
5 ............... 72
7 ............... 60
11 ............... 48
13 ............... 36
d. In the short run, what is the new price of widgets, and how many does each firm produce?
e. In the long run, what is the new price of widgets and how many does each firm produce? How many firms will enter or leave the industry?