The market for chocolate covered macadamias is characterised by demand Qd = 300 - p. Initially, there are only 10 firms selling chocolate covered macadamias, and strict barriers to entry prevent any new firms from entering the market. Each has costs given by c(q) = q² +6 for q> 0 and c(q) = 0 for q=0. If rounding is needed, please round your answers to 3dp. a) If all 10 firms behave like price-takers, what will be the price of chocolate covered macadamias? b) Now barriers to entry are lifted, and any number of identical firms (with the same cost structure) can enter. How many new firms (i.e. not counting the original 10) will have entered when the market is in long run equilibrium? c) Now suppose a new type of firm with a new technology for producing chocolate covered macadamias arrives on the scene. Each of these new firms has costs given by c(q) = q² + 2 for q> 0 and c(q) = 0 for q = 0. If there are no barriers to entry or exit for either the old or new firms, in the long run equilibrium, how many of the new firms will be operating in the market? d) How many of the old firms (with the original cost structure) will be operating in the market?
The market for chocolate covered macadamias is characterised by demand Qd = 300 - p. Initially, there are only 10 firms selling chocolate covered macadamias, and strict barriers to entry prevent any new firms from entering the market. Each has costs given by c(q) = q² +6 for q> 0 and c(q) = 0 for q=0. If rounding is needed, please round your answers to 3dp. a) If all 10 firms behave like price-takers, what will be the price of chocolate covered macadamias? b) Now barriers to entry are lifted, and any number of identical firms (with the same cost structure) can enter. How many new firms (i.e. not counting the original 10) will have entered when the market is in long run equilibrium? c) Now suppose a new type of firm with a new technology for producing chocolate covered macadamias arrives on the scene. Each of these new firms has costs given by c(q) = q² + 2 for q> 0 and c(q) = 0 for q = 0. If there are no barriers to entry or exit for either the old or new firms, in the long run equilibrium, how many of the new firms will be operating in the market? d) How many of the old firms (with the original cost structure) will be operating in the market?
Chapter18: Asymmetric Information
Section: Chapter Questions
Problem 18.4P
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