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 function

()=+4+32 for>0

Technology 2 uses electricity from the grid and is more efficient, with a cost function () = + 2+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.

The long run price, now that there are 10 bicycle manufacturers using technology 1, will remain at=17

There is still free entry for firms using technology 2.

Now suppose that the State of Massachusetts increases the number of solar bike manufacturing subsidies it will give from 10 to 100.

What is the new long-run price?

= ?

How much will be produced in total by firms with technology 1?

= ?

How much will be produced by total by firms with technology 2?

= ?

How many firms will there be with technology 1?

= ?

How many firms will there be with technology 2?

= ?

How much profit will be earned by each firm with technology 1?

= ?

How much profit will be earned by each firm with technology 2?

= ?