Problem
The Highland Commodities Company is a typical firm in a perfectly competitive market has a cost structure described by the equation:
C = 25 - 4QF + Q2F
where QF is measured in thousands of units.
1. Using the profit-maximizing condition, P = MC, write an equation for the firm's supply curve. If 40 such firms serve the market, write down the equation of the market supply curve.
2. In the perfectly competitive market described above, what is the equilibrium price in the long run?
3. Find the output level for Highland Commodities.
4. Let industry demand be given by the equation
QD = 320 - 20P.
Find total output in the long run. How many firms can the market support?
5. Starting from the long-run equilibrium above, suppose market demand increases to
QD = 400 - 20P.
Find the equilibrium price in the short run (before new firms enter). Check that a typical firm makes a positive economic profit.
6. In the long run-after entry-what is the equilibrium price? How many firms will serve the market?