1.12. A number of stores offer film developing as a service to their customers. Suppose that each store offering this service has a cost function C(q)

= 50 + 0.5q + 0.08q2and a marginal cost MC = 0.5 + 0.16q.

a. If the going rate for developing a roll of film is $8.50, is the industry in long-run equilibrium? If not, find the price associated with long-run equilibrium.

b. Suppose now that a new technology is developed which will reduce the cost of film developing by 25 percent. Assuming that the industry is in long-run equilibrium, how much would any one store be willing to pay to purchase this new technology?