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Suppose that each firm in a competitive industry has the following identical costs: Total cost: TC = 25+0.25Q2 , where Q is an individual firm's quantity produced.
The market demand curve for this product is as follow: Demand: P=60-0.095Q, where P is the price and Q is the total quantity of the good. Currently.
(i) Identify each firm's fixed cost, variable cost, and its marginal cost.
(ii) Suppose that there are 10 firms in the market. Construct the market supply function in the short run. Determine the equilibrium price and quantity. (Hint: If each firm's supply function is Qi= a+bP then the market supply Qm can be the aggregated supply at each price as Qm = Q1+Q2+Q3+...+Qi where Qi is each firm's supply function.
(iii) Calculate each firm's production quantity and profit (or loss) in the short run. Predict whether a firm will decide to leave or stay in the market as well as the long-run market equilibrium with free entry and exit.
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