A number of stores offer film developing as a service to their customers. Suppos

Question

A number of stores offer film developing as a service to their customers. Suppose that each store offering this service has a cost function (C) C(q) = 50 + 0.20q + 0.08002 and a marginal cost (MC) of MC(q) = 0.20 + 0.1 60q If the going rate for developing a roll of film is $8.00, is the industry in long-run equilibrium? No . Find the price associated with long-run equilibrium. The market will be in long-run equilibrium when the price is $4.20. (Enter your response rounded to two decimal places.) Suppose now a new technology is developed that will reduce the cost of film developing by 25 percent. Assuming that the industry is in long-run equilibrium, how much would any one store be willing to pay to purchase this new technology? Assuming that the market price remains at the above long-run equilibrium level, a firm would be willing to pay $for the new technology. (Enter your response rounded to two decimal places.)

Explanation / Answer

Answer : As long term equiliburm total revenue = 4.20q

MR =4.20

MC = 0.20+0.160q

MR=MC

4.20 =0.20+0.160q

4.00 = 0.160q

q=25 units

Here, total cost of developing a roll of film = 50+0.20*25+0.0800*(25)2

Total cost of developing a roll of film = $105

But after using new technology cost has been reduced by 25% . Now the firm bear new cost is $ 78.75. The maximum price the seller willing to pay for new technology is    $26.25.

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