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1. There are three firms in the printing business. Firm 1 has a total cost curve given by C1 (Q) = .1le + 250 where
1. There are three firms in the printing business. Firm 1 has a total cost curve given by C1 (Q) = .1le + 250 where Q is measured in books printed per day. Firms 2 and 3 have identical costs to each other but their costs are higher than firm 1. In particular, the total cost curve is C J. (Q j) = .le +5QJ. + 250 (i=2 or 3). The daily demand for books is given by QD=550-15P. a) What are the marginal costs of firm 1? What are the average costs?I What is the optimal scale of rm 1? What is the supply curve? Illustrate firm 1's marginal and average cost curves. What are the marginal and average costs of firm 2? What is the optimal scale of rm 2? What is the supply curve? Illustrate firm 2's marginal and average cost curves in a separate diagram. b) What is the market supply of the 3 firms? What is the market clearing price and quantity in the short run? Are firms earning positive profits in the short run? Suppose that firms can freely copy the technology of rms 2 and 3 but not rm 1. So if a rm enters the market the firm will have the same cost curve as rms 2 and 3. c) In the long run, if rms can enter and exit the printing business then what will be the long run market clearing price and quantity traded? What will be the prots of the 3 firms in the long run? Illustrate the long run prots in your diagrams for parts (a) and (b)
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