Question

Assume the following market is a pure competitive and all firms are identical with the same costs functions: ?? = 100 + 80 ∗ ? + ? 2 ?? = 80 + 2? The market demand is ? = 150 −?? The equilibrium price in short run is $100. Note that Q is the market quantity and q is the quantity produced by a single firm.

1) Calculate the output that minimizes average total cost (ATC). (2 points)

2) What is the breakeven price for this firm in long run? How many firms will be in the long run? (3 points)

3) Find the market supply equation ? = ? + ? ∗ ?? , where (a, b) are constant to be determined. And classify the supply as elastic, inelastic, etc. (3 points)

4) What is the shutdown price for this firm in short run? (2 points)

5) Assume a new technology causes the costs functions to change as follow: ????? ????: ?? = $144 ??????? ???????? ????: ??? = 48 + ? ???????? ????: ?? = 48 + 2? Based on this information and holding everything else constant, how many firms will be in the long run?

Answer 1