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Economics

1.1 Perfect Competition

We have only one type of firms in the market with the total cost of production C = Q2 + 25. The fixed cost of production is F C = 16. The market demand is P =50-0.6Q.

a. In the short run, we have five competitive firms in the market. Calculate the short run equilibrium price and quantity in the market.

b. In the long run, we have free entry and exit of firms. Calculate the long run equilibrium price and quantity in the market.

c. Now the demand shifts downward to P = 12-0.6Q. Redo part (a) and (b) in this case. Explain how the market demand shall affect the equilibrium market outcomes.

1.2 Two Types of Firms in the Market

Assume, now we have another type of firm with the total cost of production C = Q2 +4. The fixed cost of production for type 2 firms is FC = 3. There are a total of 8 firms of type 2 and 5 of type 1 firms.

a. Calculate and plot the market supply curve in the short run. Then charac- terize the equilirium price and quantity in the market.

b. Calculate and plot the market supply curve in the long run. Then charac- terize the equilibrium price and quantity in the market.

c. Now the demand shifts downward to P = 20-0.4Q. Redo part (a) and (b) in this case. Explain how the market demand shall affect the equilibrium market outcomes.

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