A perfectly competitive industry has a large number of potential entrants. Each firm has an identical cost structure given by: C(qi) = 0.5qi² − 10qi + 200, where qi is the individual quantity. Total market demand is Q = 1500 – 50p, where Q is aggregate quantity and p is the market price. Answer the following:
1) What is the industry’s supply schedule? Explain.
2) What is the long-run price, P* individual quantity, qi* aggregate quantity ,Q* number of firms in the economy, N*, the level of economic profits and surplus of consumers? Explain.
Consider a monopolist that must choose both price (or quantity) and quality for its product. It faces a demand P = Z(θ − Q), where P is the price of the good, Z is an index of quality, θ > 0 is a parameter and Q is the quantity of output. Assume that the marginal cost of quantity is zero and that the cost of production of quality is D(Z) = αZ2
1) Compute the quantity, the quality and the price of output in equilibrium. Explain.
2) Does the monopolist produce too high or too low quality? Explain.
3) Demonstrate your answer to question 2) analytically. Explain.