Suppose There Are N Identical Firms in an Industry

question 23

Essay

Suppose there are n identical firms in an industry. Each firm's variable cost is $1 and fixed cost is $0.04. The firms compete in quantities. The inverse demand function of this industry is p = 2 - (y₁ + y₂ + ... + y_n)
i)Suppose that the number of firms, n, is fixed. What is the output level of each firm in equilibrium? What are the equilibrium price and profits per firm?
ii)If there is free entry into the industry, what will be the long- run equilibrium number of firms?

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