Suppose we have many firms each with an individual supply curve of q=%2 P). Assume that firms have a quasi-fixed cost of $5000 (that is COST = 0 if they exit but COSTS = 5000+ variable costs if they are open). Hence Cost = q² + 5000 if active. Individual demand is Qº= 100 - P (a)_Let there be n = 100 firms and 500 consumers. What is the equilibrium market price, output per firm, and consumption per consumer given the fixed number of firms? Show and explain.< (b)_Find each consumer's Consumer Surplus. Show your work. (c) Find profits per firm. What does this imply for entry/exit decisions? Show your work. (d) Now let the number of firms change so that each firm's profits are zero. How many firms will there be in the long-run equilibrium? Show and explain why the long-run equilibrium price is $141.42. <

Suppose we have many firms each with an individual supply curve of q=%2 P). Assume that firms have a quasi-fixed cost of $5000 (that is COST = 0 if they exit but COSTS = 5000+ variable costs if they are open). Hence Cost = q² + 5000 if active. Individual demand is Qº= 100 - P (a)_Let there be n = 100 firms and 500 consumers. What is the equilibrium market price, output per firm, and consumption per consumer given the fixed number of firms? Show and explain.< (b)_Find each consumer's Consumer Surplus. Show your work. (c) Find profits per firm. What does this imply for entry/exit decisions? Show your work. (d) Now let the number of firms change so that each firm's profits are zero. How many firms will there be in the long-run equilibrium? Show and explain why the long-run equilibrium price is $141.42. <

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose we have many firms each with an individual supply curve of g$= ½ P). Assume that firms have
a quasi-fixed cost of $5000 (that is COST = 0 if they exit but COSTS = 5000 + variable costs if they are
open). Hence Cost = q² + 5000 if active. Individual demand is Qº= 100 - ½ P
(a)_Let there be n = 100 firms and 500 consumers. What is the equilibrium market price, output per
firm, and consumption per consumer given the fixed number of firms? Show and explain.
(b)_Find each consumer's Consumer Surplus. Show your work.<
(c) Find profits per firm. What does this imply for entry/exit decisions? Show your work. <
(d) Now let the number of firms change so that each firm's profits are zero. How many firms will
there be in the long-run equilibrium? Show and explain why the long-run equilibrium price is
$141.42. <

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