Over an initial range of output marginal cost of widget production by the typical firm is constant; above that range it rises. The cost function of a typical firm is given by: TCi = 390 + 10qi for qi ≤ 50
= 390 + 10qi + 0.1(qi - 50)2 for qi> 50
Demand for widgets is given by: q = 1440 - 50p
(a) Sketch the marginal cost curve for the typical firm.
(b) If eight identical firms operate competitively in the industry, what is the short run industry supply curve? Sketch it.
(c) Determine short-run market equilibrium production and price.
(d) Is the equilibrium calculated in (c) also a long- run equilibrium? Why or why not?
(e) If market demand falls drastically to q = 700 - 50p, what will be the short run equilibrium market production and price? Can you determine output for each individual firm in the short-run? In the long run what will happen to this industry under these demand conditions?
(f) Under the original demand condition, q = 1440 - 50p, what will be the short run effect of government imposition of a lump sum tax per firm equal to 170? If this tax remains, what will happen to equilibrium market production and price in the long run? How many firms will survive in the long run?