Suppose in Pakistan, all the firms are identical with identical
cost curves which mean
industry is perfectly competitive. Now please consider this following information about the
industry: A representative firm’s total cost is given by the equation TC = 100 + q2 + q where
q is the quantity of output produced by the firm. You also know that the market demand for
this product is given by the equation P = 1000 – 2Q where Q is the market quantity. In
addition you are told that the market supply curve is given by the equation P = 100 + Q.
a. What is the equilibrium quantity and price in this market given this information?
b. The firm’s MC equation based upon its TC equation is MC = 2q + 1. Given this information
and your answer in part (a), what is the firm’s profit maximizing level of production, total
revenue, total cost and profit at this market equilibrium? Is this a short-run or long-run
equilibrium? Explain your answer.
c. Given your answer in part (b), what do you anticipate will happen in this market in the
d. In this market, what is the long-run equilibrium price (breakeven or MC=ATC) and what
is the long-run equilibrium quantity for a representative firm to produce? Explain your
e. Given the long-run equilibrium price you calculated in part (d), how many units of this
good are produced in this market?
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