The Demand for Pizzas in the Local Market Is Given

question 61

Essay

The demand for pizzas in the local market is given by: Q_D = 25,000 - 1,500P. There are 100 pizza firms currently in the market. The long-run cost function for each pizza firm is: C(q, w) =
wq, where w is the wage rate pizza firms pay for a labor hour and q is the number of pizzas produced. The marginal cost function for each firm is: MC(q, w) =
w. If the current wage rate is $7 and the industry is competitive, calculate the optimal output of each firm given each firm produces the same level of output. Do you anticipate firms entering or exiting the pizza industry? Suppose that the wage rate increases to $8.40. Calculate optimal output for each of the 100 firms. Do you anticipate firms entering or exiting the pizza industry? What happens to the market output of pizzas with the higher wage rate? What happens to the market price for pizza?

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