Suppose that each firm in a competitive pizza market has the following identical cost:  Total cost: TC=25+1.5Q2 The market demand function for the pizza market in the above question 2(a) is:  Q= 120-P, where P is the price and Q is the total quantity of the pizza. Currently,  there are 12 firms in the market.  i. Formulate the equation or level of fixed cost, variable cost, marginal cost, average  variable cost (AVC) and average total cost (ATC) for each firm.  ii. Formulate each firm’s supply function based on the cost information prior to  innovation and determine the market supply function in the short run. The total  number of firms in the market is assumed to be fixed.  iii. Calculate the price and quantity of pizza in the market and the quantity produced  by each firm while the market is at the short-run equilibrium. Use a diagram to  illustrate this short-run equilibrium and calculate each firm’s profit or loss.  Discuss whether each firm has an incentive to leave or stay in the market.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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 Suppose that each firm in a competitive pizza market has the following identical cost: 
Total cost: TC=25+1.5Q2

The market demand function for the pizza market in the above question 2(a) is: 
Q= 120-P, where P is the price and Q is the total quantity of the pizza. Currently, 
there are 12 firms in the market. 

i. Formulate the equation or level of fixed cost, variable cost, marginal cost, average 
variable cost
(AVC) and average total cost (ATC) for each firm. 


ii. Formulate each firm’s supply function based on the cost information prior to 
innovation and determine the market supply function in the short run. The total 
number of firms in the market is assumed to be fixed. 

iii. Calculate the price and quantity of pizza in the market and the quantity produced 
by each firm while the market is at the short-run equilibrium. Use a diagram to 
illustrate this short-run equilibrium and calculate each firm’s profit or loss. 
Discuss whether each firm has an incentive to leave or stay in the market. 

iv. Estimate price and quantity of pizza while the market is at the long-run 
equilibrium. The market demand and assumption of identical marginal cost of 
each firm remain the same. Predict the quantity produced by each firm, economic 
profit or loss of each firm and the market size (measured as number of firms) 
when the market is at the long run equilibrium. Round your answer about the total 
number of firms in the market to the nearest whole number.

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