Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose that each firm in a competitive industry has the following identical costs: Total cost: TC = 25+0.25Q2 , where Q is an individual firm's

Suppose that each firm in a competitive industry has the following identical costs:

Total cost: TC = 25+0.25Q2 , where Q is an individual firm's quantity produced.

The market demand curve for this product is as follow:

Demand: P=60-0.095Q, where P is the price and Q is the total quantity of the good. Currently.

(i) Identify each firm's fixed cost, variable cost, and its marginal cost. (5 marks)

(ii) Suppose that there are 10 firms in the market. Construct the market supply function in the short run. Determine the equilibrium price and quantity. (Hint: If each firm's supply function is Qi= a+bP then the market supply Qm can be the aggregated supply at each price as Qm = Q1+Q2+Q3+...+Qi where Qi is each firm's supply function.)

(iii)Calculate each firm's production quantity and profit (or loss) in the short run. Predict whether a firm will decide to leave or stay in the market as well as the long-run market equilibrium with free entry and exit.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Macroeconomics

Authors: Lee Coppock, Dirk Mateer

2nd Edition

0393614093, 9780393614091

More Books

Students also viewed these Economics questions

Question

2. What do the others in the network want to achieve?

Answered: 1 week ago

Question

1. What do I want to achieve?

Answered: 1 week ago