Question
1. Suppose you have many identical firms in a long run competitive equilibrium. Each firm's average cost function is given by = 0.1 + 0.05
1. Suppose you have many identical firms in a long run competitive equilibrium. Each firm's average cost function is given by = 0.1 + 0.05 + 5/q , and the marginal cost function is given by = 0.1 + 0.1. Demand in this market is given by = 13.1 0.04, where Q is the
entire market output.
(a) How much will each firm produce? What will be the whole market output? How many firms will there be?
(b) Suppose the market demand changes to = 15.1 0.04. What is the market outcome now? (Market output, each firm's output, number of firms).
(c) Illustrate equilibria from parts (a) and (b) on a graph with the demand curves and the long run supply curve.
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