A perfectly competitive industry has a large number of potential entrants. Short-Run total cost is STC=0.1q²+40 and all firms have identical cost structure. They all minimize cost at the same point where Min AC=MC and are at their long run equilibrium.

a)-Find the quantity and the cost of every firm at that point. If total market demand is P=12-1600Q.

b)-Find the total quantity demanded in the market and the corresponding number of firms.

c)-Derive the market supply curve and calculate the total Welfare (CS+PS) in this market.

Due to an increase in Income consider that demand shifted to P=15-1600Q.

d)-What will be the new market equilibrium price and quantity? What will be the output/firm in the short-run? Since entry and exit is possible in the long-run cost.

e)-What should the new number of firms become to satisfy this quantity and derive the new market supply?

Go back to the original case where P=12-1600Q and if the government imposes a $2/unit tax on this market.

f)-What should be the new equilibrium price and quantity? Who pays more of the tax the suppliers or the consumers?

g)-Calculate the new social welfare, the government revenue and the DWL.

Instead of the tax the government decides to open the market for international competition where the price is $2 and impose a $1/unit tariff.

H)-Calculate the increase in the original welfare and then the reduction in welfare due to the tariff.

i)-Calculate the government revenue and the DWL from the tariff.

Answer rating: 100% (QA)

a Total cost is STC01q240 and all firms have identical cost structure They all minimize cost at the ... View the full answer