Suppose a perfectly competitive firm
i has a total cost function given by the equation
TCi = XXXXXXXXXX
qi2, and that there are 10 identical firms in this industry.
Also, suppose that there are 100 identical individuals (denoted
j) in the economy each with the inverse demand equation
P = 200 – 60
qj.
a) Write down an expression for the marginal cost, average variable cost, and average total cost functions for a representative firm. At what quantity is average total cost minimized?
b) Write an expression for the industry supply curve. Also, write an expression for the industry demand curve. Solve these for equilibrium industry quantity and price.
c) How much quantity does each individual firm produce? Using your answers from a) and b), determine if an individual firm is making a profit or loss and calculate this amount.
d) In the long run, will there be entry or exit of firms into this industry? Calculate the number of firms that will serve the industry in the long run?
Document Preview: Short Answer Questions
1. Suppose a perfectly competitive firm i has a total cost function given by the equation TCi = 200 + 2qi2, and that there are 10 identical firms in this industry.
Also, suppose that there are 100 identical individuals (denoted j) in the economy each with the inverse demand equation P = 200 – 60qj.
a) Write down an expression for the marginal cost, average variable cost, and average total cost functions for a representative firm. At what quantity is average total cost minimized?
b) Write an expression for the industry supply curve. Also, write an expression for the industry demand curve. Solve these for equilibrium industry quantity and price.
c) How much quantity does each individual firm produce? Using your answers from a) and b), determine if an individual firm is making a profit or loss and calculate this amount.
d) In the long run, will there be entry or exit of firms into this industry? Calculate the number of firms that will serve the industry in the long run?