Despondent over the Red Sox's terrible season, Prof. Gruber decides to quit his day job and start a bicycle manufacturing firm in Kendall Square. As he starts looking into the bicycle manufacturing industry, he realizes it has some interesting features. First, he realizes that it operates as a competitive industry. Second, he finds that there are two technologies used by firms in the industry. Technology 1 uses solar power, and has a cost function₁()=+4²+32 for>0

.Technology 2 uses electricity from the grid and is more efficient, with a cost function₂()=+2²+32 for>0

. Assume that we are in the long run, so firms using both technologies can shut and leave the market at 0 cost, so that(0)=0

for both technologies.

Q1. Derive the supply curve for each technology.

₁()=

q_2(p)=

Q2. In the long-run, assuming that firms can choose their technology, what will happen?

Q3. The long run price, now that there are 10 bicycle manufactuers using technology 1, will remain at*=17

. There is still free entry for firms using technology 2.

What quantity will be produced by each firm using technology 1?

Q4. What quantity will be produced by each firm using technology 2?