Consider a city that has a number of ice cream stands operating throughout the downtown area. Suppose that each vendor (as well as each of potential entrants) has a total cost function, C(q)=2qC(q)=2q, where qq is the number of ice creams. Suppose also that the maximum number of ice creams that any one vendor can sell is 100 per day.

1. What is the magnitude of the fixed cost?

2. What is the marginal cost?

3. If the price of an ice cream is $3.00, how many ice creams does each vendor want to sell?

4. Suppose the market demand for ice creams per day is given by Q=40001000PQ=40001000P, where PP is the price per ice cream and QQ is the quantity of ice creams (in aggregate). In the competitive equilibrium, assuming that each vendor sells exactly 100 ice creams per day, how many stands are in operation?

5. Keep assuming the same market demand. Now suppose that the city decides to regulate ice cream vendors by issuing permits (i.e. an ice cream vendor has to hold a permit to operate in the city). If the city were to sell 10 permits, what would be the maximum price each vendor would pay to obtain a permit?