Suppose that a law is passed requiring each kite maker to have one fire extinguisher on the
Question:
Q = P
For example, at a price of $3, 3 fire extinguishers would be provided. Suppose that the kite industry reaches a new long-run equilibrium.
a. Let F be the number of firms in the kite industry. Explain why each now has long-run cost curves given by
AC = Q + 100/Q + F/Q and MC = 2Q
b. How many kites will each firm produce? (You will have to express your answer in terms of F.) How many kites will the entire industry produce? (Again, you will have to express your answer in terms of F.) What will the price of kites be?
c. If the price of kites is P, what is the number of firms F? How many kites will the industry produce in terms of P? Write a formula for the long-run industry supply curve.
d. Suppose, as in Exercise N6, that the demand for kites is
Q = 8,000 − 50P
What will be the price of kites? How many kites will be produced? By how many firms?
How much profit does each firm earn?
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a Fire extinguishers are a fixed cost so MC does not change T...View the full answer
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