A competitive industry includes a large number of identical firms. Each firm has the total cost...

A competitive industry includes a large number of identical firms. Each firm has the total cost function TC(q) = q2 + 25. It can be shown that each firm’s marginal cost function is MC(q) = 2q.

a. Derive an equation for a single firm’s supply equation..

b. Derive the individual firm’s average total cost equation. Show your work. Now suppose the market price of the firms’ output is $8.

c. What will each firm’s profit-maximizing output be equal to?

d. What is each firm’s profit equal to at its profit-maximizing output?

consider long run equilibrium

What (if anything) will happen to the number of firms in this industry in the long run? Will it rise, fall, or stay the same? Why? Carefully explain.

f. What will be the equilibrium market price in this market in the long run? Why? Show your work and carefully explain.

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Expert Solution

Rahul Sunny answered 1 year ago

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