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Suppose that the potential customers for hair braiding in a city believe that all hair braiding is 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 -8Q2 + 20Q + W
where Q is the number of hair braidings and W is the daily wage paid to workers. The wage, which depends on total industry output, equals W = 0.1NQ, where N is the number of ?rms. Market demand is:
QD = 500-20P
A)* How does average total cost for the ?rm change as industry output increases and what does this imply for industry's long-run supply curve?
(b) Calculate the long-run equilibrium output for each ?rm.
(c) Explain how the long-run equilibrium price changes as the number of ?rms increases?
(d) Calculate the long-run equilibrium number of ?rms and total industry output.
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