Question

# Suppose the daily demand function for pizza in Berkeley is           Qd=1,525−5P.Qd=1,525−5P. The variable cost of...

Suppose the daily demand function for pizza in Berkeley is

Qd=1,525−5P.Qd=1,525−5P.

The variable cost of making Q pizzas per day is

C(Q)=3Q+0.01Q2.C(Q)=3Q+0.01Q2.

There is a \$100 fixed cost (which is avoidable in the long run), and the marginal cost is

MC=3+0.02Q.MC=3+0.02Q.

a. If there is free entry in the long run, what is the long-run market equilibrium in this market?

P* = \$.

Q* =  pizzas.

Suppose that demand increases to

Qd=2,125−5P.Qd=2,125−5P.
b. If, in the short run, the number of firms is fixed (so that neither entry nor exit is possible) and fixed costs are sunk, what is the new short-run market equilibrium?

P* = \$.
Q* =  pizzas.

c. What is the new long-run market equilibrium if there is free entry in the long run?

P* = \$.

Q* =  pizzas.
d. What if, instead, demand decreases to Qd=925−5P?Qd=925−5P?

Short-run equilibrium price = \$.

Short-run equilibrium quantity =  pizzas.

Long-run equilibrium price = \$.

Long run equilibrium quantity =  pizzas.

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