Economics 1.2

Consider a competitive market in which the market demand for the product is expressed as: P = 7500 – 1.5Q, and the supply of the product is expressed as: P = 1500 + 0.50Q. The typical firm in this market has a marginal cost of MC = 1500 + 100q.

a. Determine the equilibrium market price and output. Calculate the consumer surplus and the producer surplus at equilibrium in the industry.

b. Determine the output of the typical firm, given your answer to part (a) above. How many firms are there in the industry?

c. If the market demand were to increase to P = 8400 – 1.5Q, what would the new price and output in the market be in the short-run? What would the new output for the typical firm be? (Do not round up your answer.)

d. If the original supply and demand represented a long-run equilibrium condition in the market (assuming constant cost industry), would the new equilibrium (c) represent a new long-run equilibrium for the typical firm? Explain.

e. To be in the long-run equilibrium with the new demand, how many firms would enter into or leave from the industry? Show your work.

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