1. perfectly competitive industry consists of two types of Firms: 100 firms of t
ID: 1096579 • Letter: 1
Question
1. perfectly competitive industry consists of two types of Firms: 100 firms of type A and 30 firms of type B. Each type A firm has a short-run supply curve MC= ½ qa. Each type B firm has a short-run supply curve MC = 1/10 qb. The market demand curve is Q=500-500P. a. What is the short-run equilibrium price in this market? Explain. b. At this price, how much does each type A firm produce, and how much does each type B firm produce? Explain. c. How much profit is firm type A making? How much profit is firm type B making? Explain. (Assumption: there is no fixed cost to firm A and firm B).Explanation / Answer
a.
In short run MC curvis the supply curve for individual firm.
Total market supply
Q=100Qa+30Qb
Q= 100*2P+30*10P (MC=P fore each firm)
Qs=500P
Qd =5000-500P
Qs=Qd
P=5, Q=2500
b.
Qa = 2MC = 10
Qb = 10MC = 50
c.
Integrate marginal cost function
Cost firm A= Qa^2/4 = 25
Cost for firm B = Qb^2/20 = 125
Revenue firm a =P*Qa = 50
Revenue firm b = P*Qb = 250
Profit firm A = 25
Profit firm B = 125
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