1. Industry in the Short Run

Suppose an industry consists of 500 identical firms all producing a standardized product (widgets).The marginal cost function of each firm is given by Table 1.The fixed cost for each firm is $280. The data for the industry's aggregate demand curve are shown in Table 2.

a. Determine the short-run supply curve for a typical firm in this industry (assume that every firm is a competitive profit-maximizer, and that if a firm is indifferent between producing two different quantities of output, it will choose the larger one).(10 points)

b. Determine the aggregate short-run supply curve for the industry. (10 points)

c. Find the short-run equilibrium price and quantity for this industry with all 500 identical firms open for business. (10 points)

d. What do you expect to happen in this industry in the long run? (10 points)

(Hint: Need to calculate average total cost and then compare the average total cost and the market equilibrium price; firms will leave or enter this industry until average total cost is equal to the market price)

e. Suppose the government decides that active industrial policy will promote growth in the economy.It introduces a permanent subsidy of $5 per unit, effective immediately.How will this affect the firm's marginal cost?The firm's average cost? (10 points)

f. Draw the industry's short-run supply curve in the new situation.Find the new equilibrium price and quantity. (10 points)

Hint: To determine the short-run supply curve, you would need to compete the table below (q is from 1 to 15). _______ _______ _______