3. Suppose that the market demand for a product is given by Q = A- BP (A>0 and B > 0). Suppose also that in a competitive industry the typical firm's cost function is given by C(q) = k+aq +bq (k> 0, a >0 and b > 0). (a) Calculate the long-run equilibrium market price and the output for the typical firm. (b) Calculate the equilibrium number of firms in the market. (c) Describe how changes in the demand parameters A and B affect the equilibrium number of firms in this market. Explain your results intuitively.

3. Suppose that the market demand for a product is given by Q = A- BP (A>0 and B > 0). Suppose also that in a competitive industry the typical firm's cost function is given by C(q) = k+aq +bq (k> 0, a >0 and b > 0). (a) Calculate the long-run equilibrium market price and the output for the typical firm. (b) Calculate the equilibrium number of firms in the market. (c) Describe how changes in the demand parameters A and B affect the equilibrium number of firms in this market. Explain your results intuitively.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.9P

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