EXERCISE 1 Consider a competitive industry with a large number of rms, all of which have identical cost functions C(y) = y2 + 1 for y > 0 and C(0) = 0. Suppose that initially the demand curve for this industry is given by D(p) = 52 p. (The output of a rm does not have to be an integer, but the number of rms does have to be an integer.) (1) What is the supply curve of an individual rm? (Write an expression for S(p).) If there n rms in the industry, what will be the industry supply curve? (2) What is the smallest price at which the product can be sold? (3) What will be the equilibrium number of rms in the industry? (Hint: Take a guess at what the industry price will be and see if it works.) (4) What will be the equilibrium price? What will be the equilibrium output of each rm? (5) What will be the equilibrium output of the industry? (6) Now suppose that the demand curve shifts to D(p) = 52.5 p. What will be the equilibrium number of rms? (Hint: Can a new rm enter the market and make nonnegative prots?) (7) What will be the equilibrium price, the equilibrium output of each rm, and the equilibrium prots of each rm? (8) Now suppose that the demand curve shifts to D(p) = 53 10. What will be the equilibrium number of rms and the equilibrium price? (9) What will be the equilibrium output of each rm, and the equilibrium prots of each rm