Nicole wants to examine first if she wants to enter the market for Chanel bags and she assumes that the market is under perfect competition. She observed that all the firms that are producing Chanel bags have the same LR cost function and is given by C = 200 + 20q+0.5q². All firms present in the market has a fixed cost of $200 if it produces a positive output, otherwise the LR cost is zero if there is zero production. The market demand for Chanel bags is QD = 1000 - 2p, where p is the price of one umbrella. Currently, Nicole counted that there are 22 firms in the industry and that the market is a constant cost industry. (b) Since the market is considered a constant cost industry, compute for the market clearing condition in the LR. Also determine the number of firms that will be present in the market.
Nicole wants to examine first if she wants to enter the market for Chanel bags and she assumes that the market is under perfect competition. She observed that all the firms that are producing Chanel bags have the same LR cost function and is given by C = 200 + 20q+0.5q². All firms present in the market has a fixed cost of $200 if it produces a positive output, otherwise the LR cost is zero if there is zero production. The market demand for Chanel bags is QD = 1000 - 2p, where p is the price of one umbrella. Currently, Nicole counted that there are 22 firms in the industry and that the market is a constant cost industry. (b) Since the market is considered a constant cost industry, compute for the market clearing condition in the LR. Also determine the number of firms that will be present in the market.
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.4P
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