Describe the long-run equilibrium

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Consider an industry in which all firms have identical technology given by a production function: q = min K α , L 1 − α 1/2 , where q is the level of output, α is some constant between 0 and 1, and K and L are two inputs. The price of K is $1 and the price of L is also $1. In addition, each firm must pay $16 for q > 0. Assume demand is given by the demand function D(p) = 100 − p. (a) Suppose that there are six firms in the industry and no firms can enter. Characterize the equilibrium by giving: equilibrium price, quantity, output per firm, profit per firm. (b) Suppose there is free entry into this industry. Describe the long-run equilibrium by giving: equilibrium price, quantity, number of firms, output per firm, and profit per firm.

Reference no: EM13984067

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