Suppose we have n firms each with an individual supply curve of QS = P. Assume that firms have a quasi-fixed cost of $8000 (that is COST= 0 if they shut down but costs = 8000 + variable costs if they are open). There are 1000 consumers with individual demand QD = 100 -P.

a) Let's start with n = 100 firms. What is the equilibrium market price, output per firm, and consumption per consumer? b) Calculate Total Consumer Surplus, Total Producer Surplus, and Social Surplus. c) Now suppose the number of firms rises to 200. What is the new equilibrium market price, output per firm, and consumption per consumer? Compare d) How does total Consumer Surplus, Producer Surplus, and Social Surplus change? Discuss.

e) Suppose firms are free to enter/exit. What is the equilibrium number of firms in this market? Eg: at what value of n ensures that each firms has zero profits. f) Show that social surplus is at a maximum given free entry/exit. Why is this the case?