2. All steak houses have the same cost curves. Long-run average cost curve: AC = -250...

2. All steak houses have the same cost curves. Long-run average cost curve: AC = -250 + 4q + 4,900/q Long-run total cost curve: TC= 4,900 – 250q + 4q2 Long-run marginal cost curve: MC = -250 + 8q Market demand for steaks: QD = 24,375 – 200P q = number of steaks sold by firm per hour P = price per steak

2a. Calculate the long-run equilibrium price and how many steaks each individual owner will sell per hour.

2b. Calculate how many firms there are?

2c. If fixed costs increase by 640, calculate how many steaks each firm will now produce per hour.

2d. Explain if the industry has increasing, decreasing or constant costs. Calculate the new LR equilibrium price.

Solutions

Expert Solution

* The industry has increasing costs. An industry is called increasing cost industry when price of inputs increases with market expansion. It arises due to external diseconomies of scale where average cost of firm increases as size of industry expands. Since AC increases , so industry can supply more of output only at a higher price. As a result long run industry supply curve is positively sloped.

Rahul Sunny answered 6 months ago

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