1. Assume we have a constant cost industry. Suppose that each firm has total cost TC(q)=200+20q+8q,...

 

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1. Assume we have a constant cost industry. Suppose that each firm has total cost TC(q)=200+20q+8q, and marginal cost MC(q)=20+16q. The market demand curve is QD(P)= 10,000-50P. In class, we have shown that in a long-run perfectly competitive equilibrium, each firm manufactures 5 units, and that the equilibrium price is equal to 100. We have also shown that in a long-run equilibrium, 1,000 firms operate. Now, consider a demand shock so that the new market demand curve is given by QD(P)= 15,000-62.5P (from the penultimate class slide). What is the new long-run equilibrium price and individual quantity? How many firms operate in the new long-run equilibrium? 1. Assume we have a constant cost industry. Suppose that each firm has total cost TC(q)=200+20q+8q, and marginal cost MC(q)=20+16q. The market demand curve is QD(P)= 10,000-50P. In class, we have shown that in a long-run perfectly competitive equilibrium, each firm manufactures 5 units, and that the equilibrium price is equal to 100. We have also shown that in a long-run equilibrium, 1,000 firms operate. Now, consider a demand shock so that the new market demand curve is given by QD(P)= 15,000-62.5P (from the penultimate class slide). What is the new long-run equilibrium price and individual quantity? How many firms operate in the new long-run equilibrium?

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To find the new longrun equilibrium price and quantity we need to determine the market supply functi... View the full answer