Reference no: EM132786852
1) Assume that a number of identical firms compete in a perfectly competitive market. The market demand, the marginal revenue, the market supply, the firm's total cost and the firm's marginal cost are as follows:
Market demand: Q = 65 - P
Marginal Revenue: MR = 65 - 2Q
Market supply: Q = 12P
Firm total cost: TC(q) = 8
Firm marginal cost: MC(q) = q
a. Calculate the equilibrium price, the equilibrium quantity, the output produced by each firm, the profit of each firm. How many firms are there in the market?
b. Based on your answer in a. above, would there be entry into or exit from the industry in the long run? Explain. How will entry or exit affect the market equilibrium? Explain
c. Calculate the lowest price at which each firm would sell its output in the long run? What would the profit be at this price? Explain.
d. Each firm's fixed costs are sunk, what is the lowest price at which each firm would sell its output in the short run? What would profit be at this price? Explain.
e. Firms in the industry unite and become one firm. How much output will this new firm sell and what price will it charge for its output? Calculate the deadweight loss.
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