1. In a particular economy, there exists a number of firms with production function y = /2k/4 and fixed costs 1. Price of input k is 1, price of input I is 2. Only factor I can be varied in the short...

A4

Extracted text: 1. In a particular economy, there exists a number of firms with production function y = /2k/4 and fixed costs 1. Price of input k is 1, price of input I is 2. Only factor I can be varied in the short run. Demand function is D = 500 – 50p. a) What is the long-run equilibrium in this market? b) Suppose now the demand shifts to D = 100-10p. What is the industry response in the short, in the intermediate and in the long run (calculate prices, output of cach firm and the number of firms in the long run)? Hint: You can try to approximate the equilibrium price and quantity in the intermediate run or use a graphing calculator to find the answer. %3D