Question

Producing robots is a very specialized process which requires special factories.

There are two ways to produce robots (process A and process B).

It turns out that there are exactly 100 locations where you could build a type-A production facility and 100 locations where you could build a type-B facility.

That is, in this industry, there are a maximum of 100 type A firms, and 100 type B firms.

A type "A" firm has production costs: $C_{A}(q)=400+80q+q^{2}$ .

A type "B" firm has production costs: $C_{B}(q)=800+20q+2q^{2}$ .

These costs are the most efficient way of producing output in the long-run.

Firms in this industry are price takers.

b) What is the long-run equilibrium price and quantity in this market if demand for robots is given by $P(Q)=216-\frac{Q}{24}$ ?

Hint: The answer should be 100 type B firms, the equilibrium price is 116 and the equilibrium quantity is 24.

Answer 1