Y7

The market for a cup of coffee in Pittsburgh is highly competitive. The market demand for a cup of coffee can be summarized by the function: () = 2000 330. Consider each coffee shop to be an individual firm with the same cost function () = + 1.52 , where represents fixed cost of renting a space from which to sell coffee, and the VC reflect the cost of the labor involved in producing and selling coffee.a. In the short-run determine the quantity each coffee shop would produce for any price in the market.b. In what way does your answer to part (a) depend on the FC?c. Suppose initially there are 10 coffee shops selling coffee. Derive an expression for the short-run market supply for coffee.d. Find the short-run equilibrium price and quantity. How does this equilibrium depend on ?