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In this question, we consider a simplified, perfectly competitive market for point-to-point trans- port. All consumers want to travel from the same origin to the
In this question, we consider a simplified, perfectly competitive market for point-to-point trans- port. All consumers want to travel from the same origin to the same destination. The only consideration of a producer is how many trips to supply. In the short run, there are 120 firms. All firms have the same production function, f(L, K) = min 20L - 5, 8VK (1) where L refers to hours of labour, and K to units of capital used to produce this service. Suppose that the price of labour, w, is $200, and the price of capital, r, is $128. Market demand for point-to-point transport is given by QD = 700 - 20p. (2) (a) (6 points) Derive the individual firm's supply function, and use it to find industry supply. (b) (2 points) Find the market equilibrium price, and the quantity supplied by each individual . firm at equilibrium. (c) (6 points) Compute the number of firms that this industry can sustain in the long run
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