Question

1. Suppose the market for gourmet deli sandwiches is perfectly competitive and that the supply of workers in this industry is upward sloping, meaning wages increase as industry output increases. Delis in this market face the following:

Total cost = Q^(3) - 20 Q^(2) + 40 Q + W

where Q is number of sandwiches and W is the daily wage paid to workers. The wage, which depends on total industry output equals

W= 0.2 NQ

where N is the number of firms. Market demand is

Q = 700-15P

A) find the long run equilibrium output for each firm

B) How does the long run equilibrium price change as the number of firms increases?

C) Find the long run equilibrium number of firms and total industry output

D) Find the long run equilibrium price

Answer 1