Task: Firm Z, operating in a perfectly competitive market, can sell as much or as little as it wants of a good at a price of $16 per unit. Its cost function is C=50+4Q+2Q^2. The associated marginal cost is MC=4+4Q, and the point of minimum average cost is Qmin=5
Problem 1: Determine the firm`s profit-maximizing level of output. Compute its profit.
Problem 2: The industry demand curve is Q=200-5P. What is the total market demand at the current $16 price? If all firms in the industry have cost structures identical to that of firm Z, how many firms will supply the market?
Problem 3: The outcomes in parts (a) and (b) cannot persist in the long run. Explain why. Find the market`s price, total output, number of firms, and output per firm in the long run.
Problem 4: Comparing the short-run and long-run results, explain the changes in the price and in the number of firms.