Answer to Question #131167 in Finance for Satyam

Question

The market for study desks is characterized by perfect competition. Firms and consumers are price takers and in the long run there is free entry and exit of firms in this industry. All firms are identical in terms of their technological capabilities. Thus the cost function as given below for a representative firm can be assumed to be the cost function faced by each firm in the industry. The total cost and marginal cost functions for the representative firm are given by the following equations:
TC = 2qs^2+ 5qs + 50
MC = 4qs + 5
Suppose that the market demand is given by:
PD = 1025 – 2QD
Note: Q represents market values and q represents firm values. The two are different.

Question 1: At the new long-run equilibrium, how many firms will be in the industry?
a. 32
b. 45
c. 150
d. 230
Question 2. At the new long-run equilibrium, what will be the output of each representative firm in the industry?
a. 4
b. 5
c. 3
d. 2

Answer 1

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