Question
Consider a competitive industry with a large number of firms, all of which have identical cost functions c(q) = q 2 + 10q + 9.
Consider a competitive industry with a large number of firms, all of which have identical cost functions c(q) = q 2 + 10q + 9. Suppose initially that the demand in the industry is given by D(p) = 1000 20p.
(a) Derive the supply curve for an individual firm. Make sure you write it in the form: Si(p) = ( 0 for p less than what? , ? for p >=?
If there are N firms in the industry, what will be the industry supply, S(p)? Use a form similar to part (b). What is the minimum price at which a positive output will be sold in this market? (c) Suppose initially, N = 40. Compute the equilibrium market price and quantity. How much output is each individual firm producing and how much profit does each firm make? (d) Is N = 40 a long-run equilibrium? How can you tell? What will happen to the number of firms and market price in the long run (increase or decrease) and why? (e) Compute the long-run equilibrium price, market quantity, and number of firms. What is the output of each individual firm?
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