Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm’s total cost is given by the equation TC = 100 + q2 + q where q is the quantity of output produced by the firm. You also know that the market demand for this product is given by the equation P = 1000 – 2Q where Q is the market quantity. In addition, you are told that the market supply curve is given by the equation P = 100 + Q. i. What is the equilibrium quantity and price in this market given this information? The firm’s MC equation based upon its TC equation is MC = 2q + 1. Given this information and your answer in part (i), what is the firm’s profit maximizing level of production, total revenue, total cost and profit at this market equilibrium? ii. Is this a short-run or long-run equilibrium? Explain your answer. iii. Given your answer in part (ii), what do you anticipate will happen in this market in the long-run? iv. In this market, what is the long-run equilibrium price and what is the long-run equilibrium quantity for a representative firm to produce? Explain your answer.
Solve questions (iii) and (iv) only
Suppose there is a
identical with identical cost curves. Furthermore, suppose that a
representative firm’s total cost is given by the equation TC = 100 + q2 + q
where q is the quantity of output produced by the firm. You also know that the
market demand for this product is given by the equation P = 1000 – 2Q where
Q is the market quantity. In addition, you are told that the market supply curve
is given by the equation P = 100 + Q.
i. What is the
information?
The firm’s MC equation based upon its TC equation is MC = 2q + 1. Given this
information and your answer in part (i), what is the firm’s profit maximizing
level of production, total revenue, total cost and profit at this
equilibrium
ii. Is this a short-run or long-run equilibrium? Explain your answer.
iii. Given your answer in part (ii), what do you anticipate will happen in this
market in the long-run?
iv. In this market, what is the long-run
long-run equilibrium quantity for a representative firm to produce?
Explain your answer.
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