Consider the Perfectly Competitive Market for dog shampoo which, in the short run, is served by 100 identical firms. Each of these firms faces the following total cost function C(q) = q2+ 8q+36.
Determine the individual firm's Marginal Cost, Averaged Cost and Average Variable Cost functions, and use this to calculate industry supply.
Given that the industry demand curve is given by Q(p) = 1600 - 50p, calculate the market clearing price and output.
Is this market in long-run equilibrium? Why or why not?
A market is supplied competitively by 50 low-cost firms, each with cost curve Cl(q)=350+2q+q2 and n high-cost firms, each with cost curve Ch(q)=400+2q+q2. Market demand is Q=2500-10p. If none of the high-cost firms makes a positive profit, how large is n? How much profit do the low-cost firms make?
List the assumptions of the perfect competition model and describe how the voilation of each assumption might move an industry away from maximum efficiency and/or the price away from marginal cost.