Suppose the cost function (long run) for a firm is given by C(q,w) = wq^2 - 100q

Question

Suppose the cost function (long run) for a firm is given by C(q,w) = wq^2 - 100q + 100, where w is the wage for the labor input and q is total output. Market demand is given by Q= -1000P + 40,000. Suppose the wage w is fixed at $1. If there are many competitive firms in the industry, what is the long run price and output for the firm? If all firms are identical, including potential entrants, how many firms will there be in long run equilibrium? Suppose a minimum wage law raises w to $3. Find the new long run equilibrium price, output per firm and number of firms. Show this change graphically.

Explanation / Answer

Suppose the cost function (long run) for a firm is given by C(q,w) = wq^2 - 100q

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