Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 12

A perfectly competitive painted necktie industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at an output of 20 units (q i = 20). The minimum average cost is $10 per unit. Total market demand is given by
Q = 1,500 - 50P
a. What is the industry's long-run supply schedule?
b. What is the long-run equilibrium price (P*)? The total industry output (Q*)? The output of each firm (q* i ) ? The number of firms? The profits of each firm?
c. The short-run total cost curve associated with each firm's long-run equilibrium output is given by
STC =.5q 2 - 10q + 200
where SMC = q- 10. Calculate the short-run average and marginal cost curves. At what necktie output level does short-run average cost reach a minimum?
d. Calculate the short-run supply curve for each firm and the industry short-run supply curve.
e. Suppose now painted neckties become more fashionable and the market demand function shifts upward to Q = 2,000 - 50P. Using this new demand curve, answer part b for the very short run when firms cannot change their outputs.
f. In the short run, use the industry short-run supply curve to recalculate the answers to part b.
g. What is the new long-run equilibrium for the industry?