Question

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.

Instructions: Enter your answers about price to two decimal places. Enter your answers about quantities to the nearest whole number.

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.

Answer 1