Consider a monopolistically competitive market with N firms. Each firm's business opportunities are described by the following equations:Demand: Q=100/N-PMarginal Revenue: MR=100/N-2QTotal Cost: TC=50+Q2Marginal Cost: MC=2Qa. How does N, the number of firms in the market , affect each firms demand curve? Why?b. How many units does each firm produce? (The answer to this and the next two questions depend on N)c. What price does each firm charge?d. How much profit does each firm make?e. In the long run, how many firms will exist in this market?

Question
Asked Oct 19, 2019

Consider a monopolistically competitive market with N firms. Each firm's business opportunities are described by the following equations:

Demand: Q=100/N-P

Marginal Revenue: MR=100/N-2Q

Total Cost: TC=50+Q2

Marginal Cost: MC=2Q

a. How does N, the number of firms in the market , affect each firms demand curve? Why?

b. How many units does each firm produce? (The answer to this and the next two questions depend on N)

c. What price does each firm charge?

d. How much profit does each firm make?

e. In the long run, how many firms will exist in this market?

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Expert Answer

Step 1

Hey, Thank you for the question. According to our policy we can only answer 3 subparts per question. If you need further help, post the question again and mention the subpart you want us to solve.

Step 2

a)  N will affect the demand negatively. From the demand curve we can see that N is inversely related to the demand that is D=100/N-P. Therefore, if the number of firms increases the demand curve will shift leftwards as the demand will be decreasing.

Step 3

b) Each firm will produce at profit maximising point that is when MR=MC

Here, Marginal Revenue: MR=100/N-2Q

Marginal Cost: MC=2Q

Therefore,

100/N – 2Q...

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