Microeconomics

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.

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  1. 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

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