= 1. Suppose firms in a perfectly competitive, constant cost (i.e., flat LR supply curve), industry...

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= 1. Suppose firms in a perfectly competitive, constant cost (i.e., flat LR supply curve), industry face monthly demand given by QD 1000 P and have access to a production technology that yields a cost function TC(Q.) - 4Q?+ 100Q; +100 where Q denotes units produced per month. Assume the only difference between short-run and long-run costs is TC(0) 100 in the short run and TC(0) - 0 in the long run (which is consistent with all inputs being flexible, except a $100 building lease, for example). (a) Suppose the industry currently has 100 firms. What are the short-run equilibrium price and quantity? (b) What is the long-run equilibrium price for this industry? (c) How many firms will operate in this industry in the long run? (d) Suppose the government grants a monthly lump-sum subsidy to each firm that manufactures the product. If this lump-sum subsidy equals $36 per month, what would be the new long-run equilibrium price for the industry? (e) Compare consumer surplus in the long-run equilibrium before the subsidy with the long-run equilibrium after the subsidy. What is the change in consumer surplus? (f) How much does the subsidy cost the government? Is it a good idea? Explain why or why not? = 1. Suppose firms in a perfectly competitive, constant cost (i.e., flat LR supply curve), industry face monthly demand given by QD 1000 P and have access to a production technology that yields a cost function TC(Q.) - 4Q?+ 100Q; +100 where Q denotes units produced per month. Assume the only difference between short-run and long-run costs is TC(0) 100 in the short run and TC(0) - 0 in the long run (which is consistent with all inputs being flexible, except a $100 building lease, for example). (a) Suppose the industry currently has 100 firms. What are the short-run equilibrium price and quantity? (b) What is the long-run equilibrium price for this industry? (c) How many firms will operate in this industry in the long run? (d) Suppose the government grants a monthly lump-sum subsidy to each firm that manufactures the product. If this lump-sum subsidy equals $36 per month, what would be the new long-run equilibrium price for the industry? (e) Compare consumer surplus in the long-run equilibrium before the subsidy with the long-run equilibrium after the subsidy. What is the change in consumer surplus? (f) How much does the subsidy cost the government? Is it a good idea? Explain why or why not?

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a In the shortrun equilibrium each firm maximizes profit where MR MC Given the demand function QD 10... View the full answer