1. Suppose you are given the following information about a particular industry:
Market demand : Q^D = 6500-100P
Market supply : Q^S = 1200P
Firm total cost function: C(q) = 722 + q^2/200
Firm marginal cost function: MC(q)=2q/200
Assume that all firms are identical and that the market is competitive.
a. Find the equilibrium market price and quantity, the output supplied by the firm, and the firm's profits.
b. Would you expect to see entry into or exit from the industry in the long-run? Explain. What effect will entry or exit have on market equilibrium?
c. What is the lowest price at which each firm would sell its output in the long run? Is profit positive, negative, or zero at this price? Explain.
d.What is the lowest price at which each firm would sell its output in the short run? Is profit positive, negative, or zero at this price? Explain.
1. Suppose you are given the following information about a particular industry:
Market demand : Q^D = 6500-100P
Market supply : Q^S = 1200P
Firm total cost function: C(q) = 722 + q^2/200
Firm marginal cost function: MC(q)=2q/200
Assume that all firms are identical and that the market is competitive.
a. Find the equilibrium market price and quantity, the output supplied by the firm, and the firm's profits.
b. Would you expect to see entry into or exit from the industry in the long-run? Explain. What effect will entry or exit have on market equilibrium?
c. What is the lowest price at which each firm would sell its output in the long run? Is profit positive, negative, or zero at this price? Explain.
d.What is the lowest price at which each firm would sell its output in the short run? Is profit positive, negative, or zero at this price? Explain.
