21 Jul WHAT WOULD HAPPEN TO THE NUMBER OF FIRMS IN THIS NEW EQUILIBRIUM?
Consider a perfectly competitive constant cost ind Show more (Adapted from Frank 5th ed. Ch. 11 Problems #16) Consider a perfectly competitive constant cost industry. All firms in this industry have an identical long-run total cost function TC (q) = 4q2 + 100q + 100 and the long-run marginal cost function MC (q) = 8q + 100 . a) What is the long-run equilibrium price for this industry? b) If market demand is given by Q = 1000 p where p is the price how many firms will operate in this long-run equilibrium? c) Support the government grants a lump-sum subsidy of $36 to each firm that manufactures the product. What would be the new long-run equilibrium price for this industry? What would happen to the number of firms in this new equilibrium? d) Illustrate in a pair of diagrams the long-run equilibrium before and after the firms receive the subsidy. Show less
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