There are currently10identical firms in the perfectly competitive gadget

manufacturing industry. Each firm operates in the short run with a total fixed cost ofFand total variable cost of2q2, whereqis the number of gadgets produced by each firm. The marginal cost for each firm isMC= 4q. Each firm would just break even (earn zero economic profit) if the market price were40. (Note: the equilibrium price is not necessarily40when there are10firms in the market.) The market demand for the gadgets isQd= 1802:5P.

(a)Using the information provided, calculate the total fixed costFfor each firm.

(b)Suppose,36%of the total fixed costFfor each firm is sunk. What would be the shutdown price for each firm? Explain.

(c)Write down the short-run supply schedule for an individual firm. Draw it on a clearly labelled diagram.

(d)What is the equilibrium price when there are10firms currently in the market? How many firms will be producing at this equilibrium, and what profits will they earn? Show the profits earned by an individual firm on a clearly labelled diagram with the appropriate cost curves.

(e)With the given cost structure, how many firms would be in the market at an equilibrium in which every firms economic profits are zero?