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A firm has the following short run inverse demand and cost schedules for a particula product:
P = 45 - 0.2Q
TC = 500 + 5Q
A) At what price should this firm sell its products?
B) If this is monopolisitcally competitive firm, what do you think would happen as the firm moves toward the long run? Explain.
C) Suppose in the long-run, that inverse demand shifts P = 25 - 0.2Q. What should the firm do? Explain. Provide graphs for both the short-run and long-run scenarios. Make sure your graphs include MR, MC, AC.
D) Suppose in the long-run, that inverse demand shifts P = 45 - 0.8Q. What should the firm do? Explain. Provide graphs for both the short-run and long-run scenarios. Make sure your graphs include MR, MC, AC.
E) Does the demand in part c or part d represent a change in market share for the representative firm as a result of the entry or exist suggested in part b?
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