In an industry there are N firms producing a homogeneous product. Let q denote the output...

 

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In an industry there are N firms producing a homogeneous product. Let q¿ denote the output level of firm i, i = 1, 2, ..., N, and let Q denote the aggregate industry production level. That is, Q = ₁9₁. Assume that the demand curve facing the industry is p = 80 - Q. Suppose that the cost function of each firm i is given by 100 if qi >0 TC₁(qi) = if qi 0 In other words, the firms only incur a fixed cost if they decide to produce (q¿ > 0). (a) (1.5 points) Suppose that the number of firms in the industry N is sufficiently small so that all firms make positive profits. Calculate the output and profit levels of each firm in a Cournot equilibrium. (b) (1 points) Now, assume that firms are allowed to enter to or exit from the industry. Find the equilibrium number of firms in the industry. (Hint: Equate a firm's profit level that you found earlier to zero and solve for N) (c) (2.5 + 1 points) (challenging!) What number of firms maximizes total surplus (Consumer surplus + industry profits (do not forget the fixed cost!))? What do you notice? Is there too little or too much entry from a social point of view? Explain. In an industry there are N firms producing a homogeneous product. Let q¿ denote the output level of firm i, i = 1, 2, ..., N, and let Q denote the aggregate industry production level. That is, Q = ₁9₁. Assume that the demand curve facing the industry is p = 80 - Q. Suppose that the cost function of each firm i is given by 100 if qi >0 TC₁(qi) = if qi 0 In other words, the firms only incur a fixed cost if they decide to produce (q¿ > 0). (a) (1.5 points) Suppose that the number of firms in the industry N is sufficiently small so that all firms make positive profits. Calculate the output and profit levels of each firm in a Cournot equilibrium. (b) (1 points) Now, assume that firms are allowed to enter to or exit from the industry. Find the equilibrium number of firms in the industry. (Hint: Equate a firm's profit level that you found earlier to zero and solve for N) (c) (2.5 + 1 points) (challenging!) What number of firms maximizes total surplus (Consumer surplus + industry profits (do not forget the fixed cost!))? What do you notice? Is there too little or too much entry from a social point of view? Explain.

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A Here operational profit margin is operating income divided by revenue multiplied by 100 2701002 54 ... View the full answer