Posted by Chi on .
1. A perfectly competitive industry comprises of 35 competitive, profit-maximizing firms, each of which
has short-run total costs and marginal costs of
SMC = 0.25q
STC = 20 + 0.125q(squared)
The market demand curve is P = 20 − 0.05Q
(a) Find P, q and Q
(b) Suppose a tax of $2 per unit of output is imposed on the firms in the industry, find the new P, q, and Q.
Industry supply curve is the horizontal sum of each firm's marginal cost curves. If SMC=q/4 then the supply curve will be P=Q/(4*35) = Q/140 = .007142Q
Demand is P=20-.05Q At equilibrium, supply=demand, so, solve for Q and P.
Hint: I get Q=350,P=2.5, which means q=10.
b) with the tax, raise the supply curve vertically by 2. So, supply = 2+.007142Q