Suppose you are given the following information about an industry:
Qd = 6500 - 100P Market Demand
Qs = 1200P Market Supply
Assume further that a representative firm's cost function is::
C(q)= 722 + q^2 / 200 and Marginal cost of
MC(q) = q / 100
Assume further that firms are identical and the market is characterized by perfect competition.
A) Find the equilibrium price and quantity and the output the firm will produce in the short run. What is the profit of each firm?
B) Would you expect entry or exit to this industry in the long run? Explain. What effect would such entry/exit have on the market equilibrium?
C) What is the lowest price the firms may survive in the long-run? Is profit positive, negative, or zero at that price?
D) What is the lowest price the firm may sell in the short-run? Is profit positive, negative, or zero at that price?
Suppose you are given the following information about an industry:
Qd = 6500 - 100P Market Demand
Qs = 1200P Market Supply
Assume further that a representative firm's cost function is::
C(q)= 722 + q^2 / 200 and Marginal cost of
MC(q) = q / 100
Assume further that firms are identical and the market is characterized by perfect competition.
A) Find the equilibrium price and quantity and the output the firm will produce in the short run. What is the profit of each firm?
B) Would you expect entry or exit to this industry in the long run? Explain. What effect would such entry/exit have on the market equilibrium?
C) What is the lowest price the firms may survive in the long-run? Is profit positive, negative, or zero at that price?
D) What is the lowest price the firm may sell in the short-run? Is profit positive, negative, or zero at that price?
