Suppose you are given the following information about a particular industry: Market demand: Q = 1600 - 150P Short run market Supply: Q = 250P The Firm total cost function consists of a Fixed Cost of 45 and a Variable Cost of q2/5. Assume that all firms are identical in a market that is perfectly competitive. Correctly write the Firm total cost function Using the demand and supply curves for this industry, find the short run equilibrium price and quantity in the industry. Using the total cost function from part (1), derive the marginal cost function for firms in the industry. Using your answers to parts (2) and (3), 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. Using your answers to parts (2) and (4), find the total number of firms in a short run equilibrium. 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)? 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?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.7P

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Suppose you are given the following information about a particular industry:

Market demand: Q = 1600 - 150P

Short run market Supply: Q = 250P

The Firm total cost function consists of a Fixed Cost of 45 and a Variable Cost of q²/5.

Assume that all firms are identical in a market that is perfectly competitive.

Correctly write the Firm total cost function
Using the demand and supply curves for this industry, find the short run equilibrium price and quantity in the industry.
Using the total cost function from part (1), derive the marginal cost function for firms in the industry.
Using your answers to parts (2) and (3), 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.
Using your answers to parts (2) and (4), find the total number of firms in a short run equilibrium.
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)?
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?

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