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The daily demand for pizzas is Qd= 750 - 25P, wherePis the price of a pizza. The daily costs for a pizza company initially include $50 in fixed costs (which are avoidable in the long run), and variable costs equal to VC=Q2/2, whereQis the number of pizzas produced in a day. Marginal cost is MC=Q. Suppose that in the long run there is free entry into the market. If fixed costs fall to $18 and, 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 market equilibrium in the long run? How many firms are there at the new long-run equilibrium?
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