Micreoeconomics
posted by Chi on .
1. Assume a perfectly competitive constant cost industry, currently in longrun equilibrium. Market
demand in the industry is given by Q = 1500  25P. The shortrun market supply curve is given by:
Q = 15P  100 for P B 10
= 0 for P < 10
There are 25 firms in the industry.
(a) Calculate the equilibrium market price and quantity and the amount produced by each firm.
(b) Each firm is currently operating at the optimal plant size. What must be the minimum shortrun average
variable costs for the firm and the efficient average cost? Explain

First, I don't know what you mean by "for P B 10" or "=0 for P<10"
That said, equilibrium will occur when Qd=Qs. You have the equations, simply solve for Q and then P. Hint: I get Q=500, P=40. Since there are 25 firms, Qi=500/25 = 20
b) since each firm is at it's optimal plant size, and the P and Q are at their longrun equilibriums, the firm must be operating where AVC=P.
Take a shot, explain why this must be so.
I hope this helps