Suppose identical firm’s fixed costs are FC= 25, variable costs are VC= q^2 and marginal costs are MC= 2q.
a) What is the average cost curve? Give and expression, and also sketch it.
b) Find the output that corresponds to the minimum point on the average cost curve and the value for average cost at that output level.
c) If market demand is equal to QD= 300 -10P(or the inverse demand is P = 30 -(1/10)QD) find the very long-run (entry and exit is possible) equilibrium .
d) Calculate the number of firms.
e) Based on your answer in part (d) determines the market supply curveif there cannot be any more entry or exit.
f) If demand changes to QD= 400 –20P(or P= 40 -(1/20)QD)suppose the number of firms does not change, find an existing firm’s profits, if any, after the demand change.
g) What is the very long-run supply curve?