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There is currently many firms in a perfectly competitive market.  Each firm has a cost function of the form TC(qf)=3qf^2+5qf+108. The market demand is QD= -10P + 710.

a)  Find the long run competitive equilibrium firm quantity, market price and number of firms.  

b)  Assume for the moment that we believe this to be a constant cost industry.  Under this assumption, what should we observe as the new long run equilibrium price, market quantity and number of firms if the number of consumers doubles?  

c)  It turns out that when the number of consumers doubles, the new long run price is in fact, 40.  Is this an increasing, decreasing, or constant cost industry?  Find the new long run market output, and explain why you cannot find the new long run number of firms.

Macroeconomics, Economics

  • Category:- Macroeconomics
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