Therefore the supply function shall be 0 if p 8 S p if p 8 c Suppose there are

# Therefore the supply function shall be 0 if p 8 s p

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. Therefore, the supply function shall be 0 if p < 8 S ( p ) = if p ≥ 8 . c. Suppose there are 30 firms with this same technology, what is the market supply?We shall add supply from all these firms horizontally. The market supply is (Supply is zero when p < 8). d. Suppose there is free entry to the industry and all firms have the same technology. Themarket demand of this industry is Q D ( p ) = 160 − 10 p. What will be the long run equilibrium price and the number of firms of the industry? The long run equilibrium price will be p = 8, because any price higher than 8 results in positive profit and attract more entrants. Plug in p = 8 to the demand Q D (8) = 80 and to firm’s supply S (8) = 4. 80 ÷ 4 = 20, there will be 20 firms in the industry. 2.For the car industry of nation A, the market demand is QD(P,I) = 2000 × P2I0.5,where I is income. a.Compute the price elasticity eD,P and income elasticity eD,I of the car demand b.Suppose there is a 10% increase of income I. We do not know the supply function . Q S ( P ), but knows that the supply elasticity is e S,P = 3 from empirical data. Predict how much the equilibrium price will increase (in percentage).

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3 The goal is to compute , We know that in the equilibrium Therefore, by the defintion of elasticity e P,I , the 10% increase will result in 1% increase in equilibrium car price (approximately). 3. Consider the car industry in nation C. The domestic demand for car can be represented byinverse demand The domestic car inverse supply is a. If nation C probibit international trade, calculate equilibrium price, quantity, consumer surplus, (domestic) producer surplus.
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