Question: Question 3 In this question we analyze a perfectly competitive industry consisting of several identical firms. The market demand and supply curves for this

Question 3 In this question we analyze a perfectly competitive industry consisting of several identical firms. The market demand and supply curves for this industry are given by: Qd 24,000-600P and Qs = 4000 + 400P a. What are the equilibrium price and total output in this industry? b. Assume that all firms in the industry face a marginal cost curve defined by MC = 10 + 0.5q and average total cost curve given by ATC1 = 100/q + .25q + 10. What is the equilibrium output for each firm in the industry? How much profit and producer surplus does each firm make? c. How many firms are there in this industry? d. Is this a short-run or long-run equilibrium? e. Suppose the technology used to produce this product improves so that firms' ATC declines to ATC = 40/q +.25q+10. What is the equilibrium output for each firm? How much profit and producer surplus does each firm make? (Note: Firms' MCs and AVCS remain unchanged). f. Is this a short-run or long-run equilibrium? g. Now suppose that production technology deteriorates so that average total cost increases to ATC3 = 400/q+.25q +10. At the same time, there is improvement in the industry so that the market price rises to h. P = $22. What is the equilibrium output for each firm? How much profit and producer surplus does each firm make now? (Note: Firms' MCs and AVCs remain unchanged). Is this a SR or LR equilibrium? Should firms continue to produce? Explain.

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