1. A market is perfectly competitive.

1. A market is perfectly competitive. The demand in the market is QD = 300 5P. The supply function of the rms in the market is Q3 = 20F 200 (for P 2 $10). (a) List the main assumptions underlying the model of perfect competition. (b) Find the competitive equilibrium quantity (62*) and price (P*). ((3) Determine Consumer Surplus (CS), Producer Surplus (PS) and Total Surplus (TS) associated With the equilibrium in (b). ((1) Write out the WillingnesstoPay (WTP) of the consumer as a function of the quantity (the inverse demand). What is the WTP on the last unit produced and consumed in the market? (e) Write out the industry marginal cost as a function of the level of quantity produced. To nd the industry marginal costs recall that for competitive rms MR = p and rms maximize prots by equating MR 2 M C). What is the marginal cost of the last unit produced in the competitive equilibrium? (f) Is Total Surplus maximized in the competitive equilibrium