Question 3: Suppose you are given the following information about a particular industry:Market demandQd=1600-150P Short run market SupplyQs=250P The Firm total cost function consists of a Fixed Cost of 45 and a Variable Cost of (q^2)/5 Assume that all firms are identical in a market that is perfectly competitive.a)  Correctly write the Firm total cost functionb)  Using the demand and supply curves for this industry, find the short run equilibriumprice and quantity in the industry.c)  Using the total cost function from part (a), derive the marginal cost function forfirms in the industry.d)  Using your answers to parts (b) and (c), find the quantity produced by each firm ina short run competitive equilibrium. Find the profit or loss of each firm in the short runequilibrium.e)  Using your answers to parts (b) and (d), find the total number of firms in a shortrun equilibrium.f)  In the long run, would you expect to see firms enter or exit the industry? Explainyour reasoning. What effect will entry or exit have on market equilibrium (in terms of marketprice and quantity)?g)  Given the cost curve above, what is the long run equilibrium price in the industry?What is the number of firms in a long run equilibrium? Part A,B, C

Question
Asked Dec 12, 2019
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Question 3:
Suppose you are given the following information about a particular industry:
Market demand
Qd=1600-150P
 
Short run market Supply
Qs=250P
 
The Firm total cost function consists of a Fixed Cost of 45 and a Variable Cost of (q^2)/5
 
Assume that all firms are identical in a market that is perfectly competitive.
a)  Correctly write the Firm total cost function
b)  Using the demand and supply curves for this industry, find the short run equilibrium
price and quantity in the industry.
c)  Using the total cost function from part (a), derive the marginal cost function for
firms in the industry.
d)  Using your answers to parts (b) and (c), find the quantity produced by each firm in
a short run competitive equilibrium. Find the profit or loss of each firm in the short run
equilibrium.
e)  Using your answers to parts (b) and (d), find the total number of firms in a short
run equilibrium.
f)  In the long run, would you expect to see firms enter or exit the industry? Explain
your reasoning. What effect will entry or exit have on market equilibrium (in terms of market
price and quantity)?
g)  Given the cost curve above, what is the long run equilibrium price in the industry?
What is the number of firms in a long run equilibrium?
 
Part A,B, C
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Expert Answer

Step 1

Hi, thank you for the question. As per our Honor Code, we can attempt only first three parts of the question. If you want the solution for more parts, kindly post the question again specifying the parts you want to get solved.

Step 2

a) Total cost can be calculated as the addition of fixed cost and variable cost. Hence, the total cost function is:

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TC = FC +VC TC = 45 + 5

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Step 3

b) Equilibrium level is the level and which the quantity dem...

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