Suppose that firms in an industry have the following cost function: C = 32 + 0.5

Question

Suppose that firms in an industry have the following cost function: C = 32 + 0.5q, and the industry faces an inverse demand curve of P = 90-Q. a. If the industry is competitive, find the short-run equilibrium quantity and profit of 8. a typical firm if the product is currently selling for $10. What is the firm's short-run supply curve? How many firms are in the industry in the short-run? Give the short-run industry supply curve. Assuming the same cost function holds in the long-run, find the long-rum equilibrium price, quantity, and profit of a typical firm What is the firm's long-run supply curve? What is the industry long-run supply curve, assuming constant costs and free entry and exit. How many firms are in the industry in the long-run? Graphically illustrate the industry and typical firm short and long-run equilibria. b. c. d. e. f. g. h. i.

Explanation / Answer

1- P = MC

SO 10 = Q

SO P = 10 AND Q = 10

PROFIT = TR - TC = 100-(32+50) = 18

B- SHORT RUN SUPPLY CURVE IS GIVEN BY

P = MC

P = Q

C- NOW AT P = 10

THE QUANTITY DEMANDED IS GIVEN BY

.80 FOR THE INDUSTRY

AND PER FIRM OUTPUT IS 10

THUS NUMBER OF FIRMS IS 8

D- INDUSTRY SUPPLY CURVE IS GIVEN BY

Q = 8P

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