Consider a perfectly competitive market where each firm has

Question

Question: Consider a perfectly competitive market where each firm has the short-run cost function

C(q) = a + bq + cq²

for some positive constants a, b, and c.

(1) Show that firms shut down in the short-run if p < b.

(2) Show that when p > b + 2√ac, more firms will enter in the long-run.