Question
Big Boy Corp. is the largest producer of numos. It has acquired this position because it has a patented process which allows it to produce
Big Boy Corp. is the largest producer of numos. It has acquired this position because it has a
patented process which allows it to produce numos according to the cost function:
C(Qb) = 10 + (Qb2 /100)
Each of the other firms in the industry (there are 100 other firms) uses an older process,
characterized by the cost function
C(q) = q2 + 5q + 10.
Demand for numos is
Qd = 1000 - 50p.
(a)
Assuming that Big Boy acts as a price leader, what will be the price of numos, the total
quantity produced, and the quantity produced by each firm in the short run?
(b)
If, in the long run, entry can take place freely by firms using the old technology, what will
be the price and total quantity of numos, and also the output of each firm?
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