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Consider a competitive market for desk lamps. The demand in this market is D(P)=160-10P. There are five firms in this market currently, each with...
1. Consider a competitive market for desk lamps. The demand in this market is D(P)=160-10P.
There are five firms in this market currently, each with cost function C(q)=q2/6 +24. Each firm acts competitively.
(i) What is the short-run market supply?
(ii) What is the short-run equilibrium in this market in terms of total quantity and price?
How much profit does each firm make? What is the consumer surplus?
(iii) Now suppose that free trade with the rest of the world has been allowed. The number of domestic firms is still 5. In the world market, the same desk lamps are available at price $3. What is the total quantity that consumers purchase, the quantity supplied by each domestic firm in the short-run and amount of imports? What is the consumer surplus under free trade?
(iv) Now, suppose again that there is no trade with the rest of the world.
Suppose that this is a ``constant cost'' industry. What it the long-run equilibrium price in this market? How many firms will be in the market in the long-run equilibrium and how much will each supply?
