Question
The yakwool industry has ten identical firms. Each firm has a total cost function of c(r,w,y)= 100 + (rw)0.5y2 where y indicates the number of
The yakwool industry has ten identical firms. Each firm has a total cost function of c(r,w,y)= 100 + (rw)0.5y2 where y indicates the number of bags of yakwool and r and w are input prices. This implies that the marginal cost of production is 2(rw)0.5y. We will denote the price of y by p. Assume that r=w=1 to make life easy.
a.Find firm and industry supply functions of y in the short run. (3 marks) b.If the equilibrium price is $100, find the SR profits (or losses) of each producer. (4 marks) c.Now assume that we are in the long run, and firms can enter and exit. Find the long run competitive price and total quantity supplied. Continue to assume that r=w=1. (6 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started