Question 1: There are ten firms in a competitive industry, each with MC= 40-12q + q2.
Average cost is minimized at q=12 and Average Variable Cost is Minimized at q=9 for each firm. Demand for the product is given by P=160-Q, where Q represents industry output.
A. Explain why the industry is in long run competition equilibrium
B. As a result of a new free trade policy, foreign sellers will soon be selling unlimited amounts at a price of 20. Analyze the short and long run effects on the domestic industry.
c. Who would oppose the new free trade policy? Who would favor it and why?
Question 2: Anita is a defense contractor who makes quintos for the Roman army. His cost function looks like C= 200+2q2
A. fined equations for Average Total Cost, Average Variable cost and Marginal Cost.
B. What is the supply function for this firm? Is there a minimum level of price below which Anita will produce no quintos?
C. If the competition price is 100, calculate the profit maximizing output and the amount of profit.