Question

3. There are two types of firms in an industry. Type 1 firms have the costs TC() 91) 6250.25i and type 2 firms have costs TC(92) 500052. The fixed costs for both types of firms are NOT sunk (e) If consumers demand is Q"(p) 2400 10p what is the short-run equilibrium price and quantity? What are the long-run equilibrium price, quantity, and number of firms?

Answer 1

TC (q_1) = 625 + .25 q_1^2, TC_2 = 5000 + .5 q_2^2 MC_1 = partial differential TC/ partial differential q_1 = .5 q_1, MC-2 = 1 q_2 Now raising segment of MC above Min AVC is firm�s short run SS curve, so TV C-1 = .25 q_1^2, Min TVC-1 = 0. So SS_1 = > P = .5 q_1, q_1^s = P/.5, P = q_2^s = > q_2^s = P bullet) Now short run MK + SS curve is Q^s = SIgma q_i^s = 2p + p = 3p is horizontal summation of induvudual DD curves, at given price, sum the quantities supplied. So SR MKT eq^n: Q^D (p) = 2400 - 10p at eq^n Q^D = Q^S = > 2400 - 10p = 3p so 2400 = 13p, p = 2400/13 Q = 3 p = 3 times 2400/13 = 7200/13 bullet) In long Run: - SS curve is Rising MC above Min ATC so ATC_1 = TC/q-1 = 625/q_1 + .25 q_1,