Determine the free-entry equilibrium number of firms

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Assignment:

Consider the market for widgets in a country with a population of 300 million. Demand is given by Q = (a - p)S, where a=50 and S is market size. Production technology is given by a cost function C = F + c q, where F = 1000, c = 20. Suppose the Cournot model provides a good description of the way firms compete. Finally, suppose there is a large number of potential competitors.

(a) Determine the free-entry equilibrium number of firms.

(b) Explain why the relation between market size and the number of firms is increasing but less than proportional.

Reference no: EM133537056

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