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.