Suppose the daily demand function for pizza in St. Catharines is Qd = 1525 – 5P. For one pizza store, the variable cost of making q pizzas per day is C(q) = 3q+0.01q^2, there is a $100 fixed cost, and the marginal cost is MC = 3 + 0.02q. There is free entry in the long run. (a) What is the long-run market equilibrium in this market? Assume in the short run, the number of firms is fixed (so that neither entry or exit is possible) and fixed costs are sunk. Also assume there is free entry in the long run. Consider the following scenarios: (b) The fixed costs decrease to $81. (c) The marginal costs rise by $5 per pizza. (d) The market demand decreases to Qd = 1325 – 5P (e) The marginal cost decrease by $1 per pizza and the fixed cost decreased to 81 at the - %D - same time For each scenario, calculate the new short-run market equilibrium, the profit of the firms, the new long-run market equilibrium (i.e., the equilibrium price and quantity, and the number of firms in the equilibrium), and show the short-run and long-run equilibrium on a graph
Suppose the daily demand function for pizza in St. Catharines is Qd = 1525 – 5P. For one pizza store, the variable cost of making q pizzas per day is C(q) = 3q+0.01q^2, there is a $100 fixed cost, and the marginal cost is MC = 3 + 0.02q. There is free entry in the long run. (a) What is the long-run market equilibrium in this market? Assume in the short run, the number of firms is fixed (so that neither entry or exit is possible) and fixed costs are sunk. Also assume there is free entry in the long run. Consider the following scenarios: (b) The fixed costs decrease to $81. (c) The marginal costs rise by $5 per pizza. (d) The market demand decreases to Qd = 1325 – 5P (e) The marginal cost decrease by $1 per pizza and the fixed cost decreased to 81 at the - %D - same time For each scenario, calculate the new short-run market equilibrium, the profit of the firms, the new long-run market equilibrium (i.e., the equilibrium price and quantity, and the number of firms in the equilibrium), and show the short-run and long-run equilibrium on a graph
Chapter25: Monopoly
Section: Chapter Questions
Problem 9E
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Question
Transcribed Image Text:Suppose the daily demand function for pizza
in St. Catharines is Qd = 1525 – 5P. For one
pizza store, the variable cost of making q
pizzas per day is C(q) = 3q+0.01q^2, there is a
$100 fixed cost, and the marginal cost is MC =
3 + 0.02q. There is free entry in the long run.
(a) What is the long-run market equilibrium in
this market?
Assume in the short run, the number of firms
is fixed (so that neither entry or exit is
possible) and fixed costs are sunk. Also
assume there is free entry in the long run.
Consider the following scenarios:
(b) The fixed costs decrease to $81.
(c) The marginal costs rise by $5 per pizza.
(d) The market demand decreases to Qd =
1325 – 5P
%3D
%3D
(e) The marginal cost decrease by $1 per pizza
and the fixed cost decreased to 81 at the
same time
For each scenario, calculate the new short-run
market equilibrium, the profit of the firms, the
new long-run market equilibrium (i.e., the
equilibrium price and quantity, and the
number of firms in the equilibrium), and show
the short-run and long-run equilibrium on a
graph
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