Consider a firm with the following total and marginal cost functions:

TC = 25 + 2q + q2

MC = 2 + 2q

A. At a market price of $12, how many units will the firm produce?

B. Is this market in long run equilibrium (e.g. is there an incentive for firms to exit or for additional

firms to enter)? Explain why or why not.

C. Now consider a scenario where there is a technological innovation that lowers the fixed cost to

$16 for all firms. What is the immediate impact on price and quantity in the short run, assuming

the number of firms remains constant.

D. Describe the long-run adjustments in the market that will occur as a result of the change,

considering:

i. Entry or exit of firms in the market.

ii. The market price and quantity.

iii. The ultimate impact on economic profits for firms in the market.