Tutorial assignment 8 - Problem set 8 Due at the beginning...

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Problem set 8. Due at the beginning of your tutorial on week 10 Problem 1. Perfect Competition Consider an industry in which there are 10 identical firms and 1000 identical consumers. Each consumer has the demand function y= 1 – 0.005 p . Each firm has the following short run cost function: TC( y ) = 10 y+y 2 . a. What is the market demand function? b. What is each firm’s supply function? c. What is the market supply function? d. Draw a graph illustrating one firm’s as well as the industry’s supply function and market demand function. What are the equilibrium price and quantity? How much each of the firms is producing? Now suppose the industry has 10 more firms with the cost function TC( y )=20 y+y 2 . e. What is one of these firm’s supply function? f. What is the market supply function now? What is the new market price? Problem 2. Perfect Competition A perfectly competitive industry has a large number of potential entrants. Each firm has an identical cost structure with the long run average cost minimized at an output of 20. The minimum average cost is $10 per unit. Total market demand is Y=1500 –
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