Answer Happy

Question 4 (20 marks): Consider a competitive industry with following demand and cost equation. p=490 20P MC = 2q ATC= (49/q) + q where Q is the market quantity demanded, P is the price, MC is the marginal cost, ATC is the average total cost, and q is an individual firm's quantity produced. Currently, there are 30 firms in the market. a) What are the equilibrium price and quantities for this market in the short run? Calculate the profit/loss of each firm. Draw a market demand curve and market supply curve on a graph and point out equilibrium price and quantity as (A). (Hint: you need to find the supply of one firm first, and then the short-run market supply) b) Due to the increased migration, demand for this good is increased to Qp = 560 - 20P. Calculate new price and quantity in the short run. Draw a new market demand curve and point out the new price and quantity as (B) on your graph. Explain your change from point (A) to (B). c) In the long run with free entry and exit, what are the equilibrium price and quantity in this market? How many firms stay in the market? Draw a new market supply curve and point out the long-run price and quantity as (C) on your graph. Explain your change from point (B) to (C).