ARE5474PROBLEM SET 5Due 12/01/2014Consider a market containing four identical firms each of which makes an identical product. The inverse demand for this product is P = 100 – Q, where P is price and Q is aggregate output. The production costs for firm 1, 2, and 3 are identical and given by C(qi) = 20qi ; ( i= 1, 2, 3), where qi is the output of firm i. This means that for each of these firms, variables costs are constant at $20 per unit. The production costs for firm 4 are C(q4) = (20+?)q4, where ? is some constant.
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ARE5474PROBLEM SET 5Due 12/01/2014Consider a market containing four identical firms each of which makes an identical product. The inverse demand for this product is P = 100 – Q, where P is price and Q is aggregate output. The production costs for firm 1, 2, and 3 are identical and given by C(qi) = 20qi ; ( i= 1, 2, 3), where qi is the output of firm i. This means that for each of these firms, variables costs are constant at $20 per unit. The production costs for firm 4 are C(q4) = (20+?)q4, where ? is some constant. Note that if ? > 0, then firm 4 is a high-cost firm, while if ?
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