Question

6. Suppose all firms in a given industry have the same supply curve given by S(p) p/2. There is free entry into the industry (a) Plot and label the four industry supply curves generated by these firms if there are 1, 2, 3, or 4 firms operating in the industry (b) If all of the firms had a cost structure such that if the price was below $3, they would be losing money, what would be the equilibrium price and output in the industry if the market demand was equal to D(p) 3.5? How many firms would exist in such a market? (c) What if the identical conditions as above held except that the market demand was equal to D(p) 8-p? Now, what would be the equilibrium price and output? How many firms would operate in such a market?

Answer 1

Supply Cuorue tHere the 2 A -the frews here has the came Supply cs7 ve (a) Heve fouor fs 152,3 and 4. Here ase 1 frm +he Supply Cuore 9f trese At oice - 2.5 2 Pe 10 "m industryhere asefrur frs Naw So at 4x 5 -20 2 2 10. P 10 4x10 40 2 = 20. to the fgusie belas, Refer Price S1 10 quantity 2.5 10

individual Supply Csive Here is the he fgure and S isthe industy NAJ 8iven maskat demand D(P)-9.5 Curine Supply Cutre S( 2 So at equiliboiun D(P)SCP) 7 P 2.5 2 >BA5X2 So tquilibsiu frice is 7. D() 3.5 So equilibsiun quantiy is 5 3.5 1 as total tut is equelto individua Here form andft 2.5 ntha mas ket frem the equilibsiuns Here esist equiibsium quantity and $7 toice 2. anit is Na0 1he demand Cuove .+-8(4) Supply casve 2 At equilaotun

9- 16-2P -P 16 3P 16 > -3 5-33 3 So equiliboium rica is 633 Nans 2.67 - : - 5-33 So equiliboimn quatity is 2.67 ni Ny 2 6-33 2.67 1 1 2 to-tal antfut euato alsa Hese as outfut e. 2-674mits imdiidual form operal n the in dusty One