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8 Consider a competitive industry with market demand given below. Firms in the industry can have one of two possible long-run cost functions given below. There is initially an infinite number of potential firms of both types. P = 50 Q 2 C1 = y2 2 M C1 = y C2 = 5y M C2 = 5

a) What are the supply functions for firms of both types?

b) Find the equilibrium price, quantity, and number of firms of each type in a competitive long-run equilibrium. Is there a long-run equilibrium?

c) Suppose the government intervened and limited the number of type 1 firms to be N = 5. What is the market supply function? It may help to plot this out first, and then characterize it.

d) Find the equilibrium price and quantity in the market now. What is the aggregate quantity produced by type 1 firms? What is the aggregate quantity produced by type 2 firms?