Suppose that the identical firms in a perfectly competitive market for cakes have long-run total cost functions given by TC(Q) = 10Q3 – 60 Q2 + 100Q. Total cost is independent of the number of firms and total output in the market.
a) Describe the long-run supply curve for this industry.
b) Suppose market demand is QD = 1,000 – 40P. Solve for the long-run competitive equilibrium price, output per firm, and number of firms in the market.
c) Suppose demand decreases to QD = 800 – 40P. Solve for the long-run competitive equilibrium price, output per firm, and number of firms in the market.
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