Microeconomics

A perfectly competitive industry has a large number of potential entrants. Each firm has an identical cost structure such that long run average cost is minimized at an output of 10 units (qi=10 ). The minimum average cost is R5 per unit. Total market demand is given by: Q=750-25p


a.What is the industry’s long run supply schedule? (4)

b.Determine the long run equilibrium price (p), the total industry output (Q), the output of each firm (q), the number of firms and the profit of each firm. (10)

The short run total cost function associated with each firm’s long run equilibrium output is given by

c.Calculate the short run average and marginal cost function. At what output level does short average cost reach a minimum? (6)

d.Derive the short run supply function for each firm and the industry short run supply function. (8)

e.Suppose now that the market demand function shifts upward to . Using this new demand curve, answer part ‘b’ for the very short run when firms cannot change their outputs. (8)

f.In the short run, use the industry short run supply function to recalculate the answers to part ‘b’. (6)

g.What is the new long run equilibrium for the industry? (8)

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