Consider a monopolistically competitive market with N firms. Each firms business opportunities are described by the following equations:
Demand: Q= 100 / N – P
Marginal Revenue: MR= 100 / N – 2Q
Total cost: TC = 50 + Q^2
Marginal Cost: MC = 2Q
A. How does N, the number of firms in the market, affect each firms demand curve? Why?
B. How many units does each firm produce? (The answers to this and the next two questions depend on N.)
C. What price does each firm charge?
D. How much profit does each firm make?
E. In the long run, how many firms will exist in this market?
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