2. Firm I has variable cost VCi = yi^2/10 and fixed cost FCi = 2000. (1)...

2. Firm I has variable cost VCi = yi^2/10 and fixed cost FCi = 2000.

(1) Find total cost Ci(yi), average cost ACi, marginal cost Mci and the firm supply function Si(p)

(2) There are n=50 firms identical to firm I, facing a market demand of D(p) = 1000-250p. Find the market supply function S(p), the market equilibrium price p*, the market equilibrium quantity Y*.

(3) Given price p* you found in part b, what is the profit maximising yi* that firm i produces? How much profit does firm i make?

(4) The government introduces a tax on demand so that D'(p ) = 1000-250(p+t), where t=8. What is the new equilibrium price p? What is the new market equilibrium quantity Y'?

(5) At the new market price p', and assuming that in the short run the number of firms remains n=50, how much will firm I produce and how much will profit be?

(6) Given what you found in part e, will firms enter or exit? What is the long-run equilibrium number of firms n? What is the long run equilibrium price?

Expert Solution

Colby Messinger answered 1 year ago

1. Firm I has variable cost VCi = yi^2/10 and fixed cost FCi = 2000. (1)...

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