This is a question about Monopolistic Competition. I have done part B and C, I n

Question

This is a question about Monopolistic Competition. I have done part B and C, I need help with D and E. Thanks!

(b) Pieland is filled with firms who produce different varieties of pie. Firm A has a total cost function of TCA-5Q + 25, and they face an individual demand of do 50-2P, where P is the price of pies from Firm A and do is the quantity demanded. Find the short run equilibrium price and quantity for Firm A (c) How much profit does Firm A make in the short run? (d) Suppose Firm A's profits attract firm B into the market. Firm B's total cost can be described as TCB = Q + 10, Will Firm B's entry run Firm A out of business? Why or why not? (e) Suppose in the long run, Firm A faces the demand d115-P. Using only the zero profit condition, find the long run equilibrium price and quantity. Assume that Firm A's total cost function does not change at a () face Bproduces 10 units in the long run. Find a possible demand function that Firm B may

Explanation / Answer

(d) Assuming the same demand function for firm B the equilibrium for firm B would be QB=24 and PB=13 Where as for firm A the equilibrium was QA=20 and PA=15. Profits for their respective equilibrium are Profits for B= 278 and profits for A = 175. From the cost function it is seen that fixed cost for Firm A is 25 and variable cost at firm B's equilibrium quantity is 120. So the total cost is fully covered by the profits made by firm A at the new quantity. So in short run firm A will not quit market. It is still making profits and costs are fully recovered.

I hope you know how I calculated the equilibrium. Please refer the image for same.

(B) if it is a zero profit condition then firm A will be selling its product at price with is equal to MC. hence PA=5 and QA=10

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