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Equilibrium number of pizzerias

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Your city initially restricts the number of pizzerias to one. The existing monopolist sells 2,000 pizzas per day. The number of firms is n = Q/q, where Q is the market quantity and q is the quantity per firm. In the case of monopoly,

N = Q/q = 2000/2000 = 1

A pizzeria reaches the horizontal portion of its long-run average cost curve at an output of q = 1000. Suppose the city eliminates the entry restrictions, and other firms enter the market. According to the economic consultant Difford Qq, "The equilibrium number of pizzerias is not two." Explain Difford's economic logic. Illustrate.

Reference no: EM132491875

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