Determine the short run market supply for any price

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Reference no: EM132258484

1. Consider the market for tacos sold by food trucks in Pittsburgh. Consider each taco truck to be an individual firm with the same cost function c(q)=F+q2 , where F represents fixed costs of equipping a food truck and q represents the number of tacos produced. In addition, there is a market demand of D(p)=500-20p for tacos.

a. In the short run, determine the quantity each food truck would produce for any price in the market.

b. How does your answer to part (a) depend on F? Explain.

c. Suppose initially there are 10 food trucks in the market. Determine the short run market supply for any price.

d. Determine the short run equilibrium price and quantity in the market. How does the equilibrium depend on F?

e. Give an expression for the firm’s profits in the short run. Does each food truck earn positive, negative, or 0 profits. How do the firm’s profits depend on F? Explain.

f. Now consider the long run with free entry and exit. Determine the output of each food truck and the price in the market for which no firm will have an incentive to enter or exit.

g. Determine the equilibrium price and total quantity produced in the long run. How do these depend on F? Explain.

h. How many food trucks will be in this market in the long run? How does this depend on F? [For simplicity assume the formula for number of firms produces an integer so you don’t have to worry about rounding.]

i. In the long run does each firm earn positive, negative, or 0 profits. How does this depend on F? Explain.

j. Suppose now that the government imposes a licensing fee of T, where T > 0, on each food truck. What is the effect in the short run? In the long run?

Reference no: EM132258484

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