Suppose that each firm in a competitive industry has the following costs:Total cost: TC = 50 + 1/2q2Marginal cost: MC = qWhere q is an individual firm’s quantity produced. The market demand curve for the product is:Demand: QD = 120 – PWhere P is the price and Q is the total quantity of the good. Currently there are 9 firms in the market.What is each firm’s fixed cost? What is its variable cost? Give the equation for average total cost.Graph the average-total-cost curve and the marginal-cost curve for q from 5 to 15. At what quantity is the average-total-cost curve at its minimum? What is the marginal cost and average total cost at that quantity?Give the equation for each firm’s supply curve.Give the equation for the market supply curve for the short run in which the number of firms is fixed.What is the equilibrium price and quantity for the market in the short run?In this equilibrium, how much does each firm produce? Calculate the firm’s profit and loss. Do firms have incentive to enter or exit?

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Answered: Suppose that each firm in a competitive…

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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Suppose that each firm in a competitive industry has the following costs:

Total cost: TC = 50 + 1/2q2

Marginal cost: MC = q

Where q is an individual firm’s quantity produced. The market demand curve for the product is:

Demand: QD = 120 – P

Where P is the price and Q is the total quantity of the good. Currently there are 9 firms in the market.

What is each firm’s fixed cost? What is its variable cost? Give the equation for average total cost.
Graph the average-total-cost curve and the marginal-cost curve for q from 5 to 15. At what quantity is the average-total-cost curve at its minimum? What is the marginal cost and average total cost at that quantity?
Give the equation for each firm’s supply curve.
Give the equation for the market supply curve for the short run in which the number of firms is fixed.
What is the equilibrium price and quantity for the market in the short run?
In this equilibrium, how much does each firm produce? Calculate the firm’s profit and loss. Do firms have incentive to enter or exit?

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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