In the city of Gelato the market for ice cream is perfectly competitive. Aggregate demand for ice cream is:
D(p) = 1200-25p
where p is the price for one cone of ice cream. All ice cream producers in the city have the same total cost function:
where qi represents the number of ice cream cones firm i produces. Assume that the market is in equilibrium.
a) Derive the firms' marginal and average cost.
b) Compute price and quantity in equilibrium.
Assume that there are 50 firms present in the market.
c) Calculate the number of ice cream cones that each firm produces. Will they produce the same quantity? Why (not)?
d) In general, is it possible that a firm in a perfectly competitive market produces at a price greater than its average cost?