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

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.
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