1. Consider two firm’s with respective inverse supply curves, p= 2 + and p = 2 + 2 and hence the direct supply curves = − 2 and = − 1 . Note + =

(i) Determine graphically the industry inverse supply curves given these two firms, putting p on the vertical axis and q on the horizontal. (Hint construct a table to determine how much would collectively be supplied at different prices going from p=(1,2,….10) and then plot those combinations.)

(ii) Suppose the inverse industry demand curve is = 12 − . Determine graphically the equilibrium industry price, the industry equilibrium quantity and the amount supplied by the two firms.

(iii) Suppose the inverse industry supply curve in the above case is = 2 + ( ) determine algebraically the industry equilibrium price, industry equilibrium quantity and the precise amounts supplied by the two firms.

(iv) Now suppose and additional firm like firm 1 enters the market. Determine graphically the industry inverse supply curve in this case and determine what happens to the industry equilibrium price.

2. Suppose the inverse industry supply curve is given as = 5 + where n is the number of firms that are in the industry and q is industry output. Suppose the inverse industry demand is given as = 20 − .

(i) Draw the inverse industry supply curve when there are n=1,2,3,4,5 on the same diagram. Also draw the inverse industry demand on the same diagram.

(ii) Determine the equilibrium industry price and total industry quantity supplied when there are n=1, n=3, and n=5 firms algebraically.

(iii) Comment on what happens to the equilibrium market price as the number of firms
enters the industry.

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