Technology 1 uses solar power, and has a cost function C1(q)=q+4q2+32 for q>0. Technology 2 uses electricity from the grid and is more efficient, with a cost function C2(q)=q+2q2+32 for q>0. Assume that we are in the long run, so firms using both technologies can shut and leave the market at 0 cost, so that C(0)=0 for both technologies

Now, suppose that the government of Massachusetts offers solar subsidies to 10 bicycle manufacturers. These subsidies are for $80 and the manufacturers receive these subsidies as long as they construct a bicycle manufacturing plant using the newly-invented solar technology (i.e. technology 1).

10.Determine the new MC, AC, and supply curve for the solar technology with the subsidy.The long run price, now that there are 10

bicycle manufacturers using technology 1, will remain at p=17. There is still free entry for firms using technology 2.

11.What quantity will be produced by each firm using technology 1?q1=

12.What quantity will be produced by each firm using technology 2?

13 q2=13.In equilibrium, how many firms using technology 2 will there be in the market?N2=

14.In equilibrium, how much profit will each technology 1 firm make?1=

15.In equilibrium, how much profit will each technology 2 firm make?2=