11.3 What is the industry’s long-run supply schedule?

What is the long-run equilibrium price (P*)?

The total industry output (Q*)? The output of each irm (q*)? The number of irms? The proits of each irm?

The short-run total cost function associated with each irm’s long-run equilibrium output is given by C(q) = 0.5q 2 − 10q + 200.

Calculate the short-run average and marginal cost function. At what output level does short-run average cost reach a minimum?

Calculate the short-run supply function for each irm and the industry short-run supply function.

Suppose now that the market demand function shifts upward to Q = 2000 – 50P. Using this new demand curve, answer part

(b) for the very short run when irms cannot change their outputs.

In the short run, use the industry short-run supply function to recalculate the answers to (b).

What is the new long-run equilibrium for the industry?

Suppose that the demand for skateboard is given by Q =1500 − 50P and that the long-run total operating costs of each skateboard manufacturer in a competitive industry are given by C(q) = 0.5q 2 − 10q.

Entrepreneurial talent for skateboard manufacturing is scarce. The supply curve for entrepreneurs is given by QS = 0.25w, where w is the annual wage paid.

Suppose also that each skateboard manufacturer requires one (and only one) entrepreneur (hence the quantity of entrepreneurs hired is equal to the number of firms). Long-run total costs for each firm are then given by C(q, w

) = 0.5q 2 − 10q + w.

a.

What is the long-run equilibrium quantity of skateboards produced? How many skateboards are produced by each irm? What is the long-run b.