Suppose that the potential customers for hair braiding in a city consider hair braiding to be...

Suppose that the potential customers for hair braiding in a city consider hair braiding to be identical and that the market is perfectly competitive. Hair braiding requires special skills so the supply of workers in this industry is upward-sloping, and the wages earned by hair braiders increase as the industry output increases. Firms in this market face the following total cost:

TC = Q³ – 8 Q² + 20Q + W

where, Q = number of hair braidings,

W = daily wage paid to workers, which depends on total industry output, equals W = 0.1NQ, where N = total # of firms.

Market demand is:

Q^D = 500 – 20P.

Find the long-run equilibrium output for each firm. (3 marks)

Find the long-run equilibrium number of firms (N), total industry output (NQ), and price (P).
(6 marks)

Suppose demand increases to Q^D = 1,000 – 10P. Find the new long-run competitive equilibrium.
(6 marks)

Solutions

Expert Solution

Rahul Sunny answered 2 years ago

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