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Competition and the Invisible Hand: End of Chapter Problem Let's take a look at Invisible Hand Property 2 in action using a mathematical example. Suppose
Competition and the Invisible Hand: End of Chapter Problem Let's take a look at Invisible Hand Property 2 in action using a mathematical example. Suppose an industry is characterized by the following equations. We're going to assume that all individual rms are identical to make this problem a little simpler. 0 Demand: Q0 2 100 2P 0 Individual rm's supply: (IS = 0.5 + 0.1P 0 Market supply with n rms: Q3 2 n X (15 = 0.5!: + 0.1nP 24.2 0 Individual rm's average cost: AC 2 Sq; 5 + 42 h. Suppose 35 rms are in this industry. What is the equation for market supply? What are the equilibrium price and quantity? How many units of output is each rm producing? At this level of production, what is the average cost that a rm faces? How much prot is each rm earning? According to the elimination principle, What should occur in this industry over time? The number of rms in the industry 0 will remain the same. 0 will fall as rms leave the industry. 0 will rise as rms enter the industry
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