Question
All brewers produce beer using the same technology. The cost function is C (Q) = 40 + 0.1 * Q2 The demand curve for beer
All brewers produce beer using the same technology. The cost function is C (Q) = 40 + 0.1 * Q2 The demand curve for beer on Long Island is given by QD = 400 - 30P Assume that all brewers are price takers and produce a homogenous product.
(a) Compute fixed cost, variable cost, average cost, and marginal cost.
(b) [Compute (you do not need to draw it) the supply curve for an individual brewer.
(c) Compute (you do not need to draw it) the aggregate supply curve for beer assuming there are 10 active brewers.
d) Assuming perfect competition among the 10 active brewers, what is the short-run equilibrium price and quantity of beer on Long Island?
(e) Given these market conditions, would you expect entry or exit to occur? Explain.
(f) Assuming that demand remains stable, how many brewers do you expect to see in this market in the long run?
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