Suppose the daily demand function for pizza in Berkeley is Qd = 1,525 - 5P. The variable cost of making Q pizzas per day is C(Q) = 3Q + 0.01Q2. There is a $100 fixed cost (which is avoidable in the long run), and the marginal cost is MC= 3 + 0.02Q.
There is a free entry in the long run. What is the long-run market equilibrium in this market? Suppose that demand increases to Qd = 2,125 - 5P. If in the short run, fixed costs are sunk, what is the new short-run market equilibrium? What is the new long-run market equilibrium if there is free entry in the long run? What if, instead, demand decreases to Qd = 925 - 5P.