1. Consider a perfectly competitive market with a price of $21, where each firm has a cost function of c(q) = 10+q+q². a) Is the market in long-run equilibrium? Explain why or why not. b) What is the value to a firm of a cost-saving process innovation that reduces the cost function to c(q) = 5 +0.5q²? c) Illustrate this innovation graphically using a well-labeled diagram.

1. Consider a perfectly competitive market with a price of $21, where each firm has a cost function of c(q) = 10+q+q². a) Is the market in long-run equilibrium? Explain why or why not. b) What is the value to a firm of a cost-saving process innovation that reduces the cost function to c(q) = 5 +0.5q²? c) Illustrate this innovation graphically using a well-labeled diagram.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Consider a perfectly competitive market with a price of $21, where each firm has a cost function
of c(q) = 10+q+q².
a) Is the market in long-run equilibrium? Explain why or why not.
b) What is the value to a firm of a cost-saving process innovation that reduces the cost function to
c(q) = 5 +0.5q²?
c) Illustrate this innovation graphically using a well-labeled diagram.

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Step 4: Graphical representation of the change in cost function as a result of innovation.

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