Problem 8. Assume there are N firms competing on prices in the market with imperfect demand...

 

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Problem 8. Assume there are N firms competing on prices in the market with imperfect demand elasticity. qi = A + Pj epi N i#j where e > 1 and N is the number of firms in the market. Assume marginal costs are 0 and fixed costs equal 0 as well. (a) Find equilibrium output and profit in the free-entry model above. 5 (b) Discuss the connection between elasticity and number of firms in the market. (c) Find and discuss the optimal amount of firms in the market (d) Evaluate the following statement in the context of the model: "More entry is socially desirable in any industry" Problem 8. Assume there are N firms competing on prices in the market with imperfect demand elasticity. qi = A + Pj epi N i#j where e > 1 and N is the number of firms in the market. Assume marginal costs are 0 and fixed costs equal 0 as well. (a) Find equilibrium output and profit in the free-entry model above. 5 (b) Discuss the connection between elasticity and number of firms in the market. (c) Find and discuss the optimal amount of firms in the market (d) Evaluate the following statement in the context of the model: "More entry is socially desirable in any industry"