The Market for Wheat Consists of 500 Identical Firms, Each

Essay

The market for wheat consists of 500 identical firms, each with the total and marginal cost functions shown:
TC = 90,000 + 0.00001Q²
MC = 0.00002Q,
where Q is measured in bushels per year. The market demand curve for wheat is Q = 90,000,000 20,000,000P, where Q is again measured in bushels and P is the price per bushel.
a. Determine the short-run equilibrium price and quantity that would exist in the market.
b. Calculate the profit maximizing quantity for the individual firm. Calculate the firm's short-run profit (loss) at that quantity.
c. Assume that the short-run profit or loss is representative of the current long-run prospects in this market. You may further assume that there are no barriers to entry or exit in the market. Describe the expected long-run response to the conditions described in part b. (The TC function for the firm may be regarded as an economic cost function that captures all implicit and explicit costs.)