Q) Firms in the gadget industry have identical costs given by C(q) = 320 + 20q + 5q^2; of the 320, firms that operate in the industry have sunk costs of 195. There are potentially an infinite number of firms with access to the technology to make gadgets according to this cost function.

The demand for gadgets is given by: Qd = 800 - 4P.

a) The gadget industry is currently in a long-run equilibrium. Describe the equilibrium by

finding the market price and the number of firms currently operating in the industry.

b) Illustrate the current state of the industry on carefully drawn and labeled side-by-side

graphs of the typical gadget firm's marginal and average costs and supply and demand in the gadget market. Indicate the area on the graph that corresponds to the firm's revenue.

c) Find the short-run market supply curve for the number of firms you found in part a).

d) Suppose demand for gadgets increases. What will happen in the short-run to the price

of gadgets? Why?

e) What will happen in the gadget market in the long-run? Why? Describe why the market might reach a new long-run competitive equilibrium price that is different from the equilibrium price you found in part a). Under what conditions would the new equilibrium price be the same as in part a)?