Economics 11: Microeconomic Theory 1 Professor Christian Hellwig Exercises Week 8 1) A perfectly competitive industry has a large number of potential entrants. Each firm has an identical cost function and their cost functions are C (q) = 100 + q 2 /4. Total market demand is given by Q = 1,500 - 50P . a) What is the long-run the equilibrium price, the output of each firm (q), the number of firms in the industry, the total industry output (Q), and the profits of each firm? b) What is the long run industry supply schedule? Now suppose that the number of firms in the market is equal to what you have found in part (b) for the long-run equilibrium. In addition, in the short-run each firm’s cost is equal to C(q)=q2/4, so his fixed cost which is equal to 100 is sunk cost, meaning they are already paid for. And in the short-run no-additional firm can enter the market. c) Calculate the short-run supply curve for each firm and the industry’s short-run supply curve. d)
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