Question
1.Consider a market of n firms with demand given by P = 200 - Q . Each firm has a constant marginal cost of $20
1.Consider a market of n firms with demand given by P = 200 - Q. Each firm has a constant marginal cost of $20 and fixed costs of $2,000. Competition is characterized by making simultaneous profit-maximizing quantity decisions.
a.What will be an individual firm's quantities and profits if n = 2? n = 3? n = 4? (Make sure to include fixed costs in your profit calculations.)
b..Assuming no changes to demand or cost structure, how many firms would you expect to exist in this market in the long-run?
c.Suppose that there were no fixed costs. Would your answer to part b change? Explain. (You do not need to make additional calculations. Think about what would happen to individual firm profits as more firms enter the market but there are no fixed costs.)
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