Equilibrium in a competitive industry
Suppose you are given the following information about a particular industry:
QD = 6500-100P Market demand
QS = 1200P Short run market Supply
C(q) = 784 + q2 /400 Firm total cost function
Assume that all firms are identical and that the market is characterized by perfect competition.
a) Using the demand and supply curves above find the short run equilibrium price and quantity in the industry.
b) Using the total cost function derive the marginal cost function for firms in the industry.
c) Using your answers to parts a) and b) find the quantity produced by each firm in a short run competitive equilibrium. Find the profit of each firm in the short run equilibrium.
d) Using your answers to parts a) and c) find the number of firms in a short run equilibrium.
e) Would you expect to see entry into or exit from the industry in the long run? Explain. What effect will entry or exit have on market equilibrium (market price and quantity)?
f) Given the cost curve above, what is the long run equilibrium price in the industry?