An industry of price-taking profit-maximising firms in perfect competition all produce using the same technology, and each has a total cost function given by:

TC = 2q3 ? 4q2 + 3q Where TC is measured in thousands of pounds per week, and q is measured in

thousands of units per week. Then: a) If the market price of output is p = 4.5 what is each firm's output and profit (or

loss)?

b) If the market price of output is p = 11 what is each firm's output and profit (or

loss)?

c) Show that each firm's long-run output is 1000 unit per week (i.e. 1 thousands of

units per week).

d) What is the price of output when the industry is in equilibrium?

e) if the market demand is given by P = 11 ? 0.01Q, where Q is the industry output in thousands of units per week, what is the industry's equilibrium output and how many firms are in the industry in equilibrium?

f) If the market demand shifts to P = 12 ? .01Q, what is the industry's equilibrium output and how many firms are in the industry in the new equilibrium?

Quantitative Methods Formative, Summary Answer Sheet for question 1: Price Profit-maximising Profit/Loss quantity $4.5 f11 long-run equilibrium price with demand as in (e): industry output number of firms with demand as in (f): industry output number of firms