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Suppose the daily demand function for pizza in Regina is Qd= 1,525 -5P. The variable cost of making Qpizzas per day isC(Q) = 3Q+ 0.01Q2, there is a $100 fixed cost (which is avoidable in the long run), and the marginal cost is MC= 3 + 0.02Q. There is free entry in the long run. What is the long-run market equilibrium in this market? Suppose that demand increases to Qd= 2125 - 5P. If, in the short run, the number of firms is fixed (so that neither entry nor exit is possible) and fixed costs are sunk, what is the new short-run market equilibrium? What is the new long-run market equilibrium if there is free entry in the long run? How many firms are there at the new equilibrium? What if instead demand decreased to Qd= 925 - 5P?
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