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Question: The yakwool industry has ten identical firms. Each firm has a total cost function of c(r,w,y)= 100 + (rw)0.5y2 where y indicates the number of bags of yakwool and r and w are input prices. This implies that the marginal cost of production is 2(rw)0.5y. We will denote the price of y by p. Assume that r=w=1 to make life easy.
a.Find firm and industry supply functions of y in the short run. b.If the equilibrium price is $100, find the SR profits (or losses) of each producer. c.Now assume that we are in the long run, and firms can enter and exit. Find the long run competitive price and total quantity supplied. Continue to assume that r=w=1.
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The economy of the land of midnight sun
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