Continue with Question 3 of Assignment 1 (You may use all results from that question directly without deriving them again.)

Suppose all firms in the market are identical with the following production function.

x = f(l,k) = A l bk b

Also, each firm faces a recurring fixed cost FC.

a. Now let A=30, b = 1/3, FC = 1,000, w = 10 and r = 15. What is the long-run equilibrium price of output? How many units of output does each firm produce?

Suppose the market demand is

b. How many firms are in the market in the long-run?

Suppose the market is initially in both long run and short-run equilibrium. Now FC rises to 2,000.

c. What is the short-run equilibrium price and market output?

d. What is the long-run equilibrium price and market output? How many firms are the market.