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Problem: Suppose that, in a large city, 200 identical street vendors compete in a competitive market for hot dogs. 1. The vendors' total costs to produce q hot dogs is C(q) = 1/4q + 1/8q^2. What is the marginal cost function of each firm? 2. Given your answer from above, how many hot dogs will each vendor produce if offered a price of $4 per hot dog? 3. Using your answer from part 1 of this problem, what is the competitive supply curve for this market? (That is, how much will a vendor produce if the market price is P?) 4. Let the market demand for hot dogs be Q = 2500 - 100P, where P is the market price and Q is the market output. What is the short-run equilibrium price? What is the total quantity of hot dogs sold in equilibrium? 5. In the long run, would you expect this industry to experience entry or exit? Explain your answer.

          Problem: Suppose that, in a large city, 200 identical street vendors compete in a competitive market for hot dogs.

1. The vendors' total costs to produce q hot dogs is C(q) = 1/4q + 1/8q^2. What is the marginal cost function of each firm?

2. Given your answer from above, how many hot dogs will each vendor produce if offered a price of $4 per hot dog?

3. Using your answer from part 1 of this problem, what is the competitive supply curve for this market? (That is, how much will a vendor produce if the market price is P?)

4. Let the market demand for hot dogs be Q = 2500 - 100P, where P is the market price and Q is the market output. What is the short-run equilibrium price? What is the total quantity of hot dogs sold in equilibrium?

5. In the long run, would you expect this industry to experience entry or exit? Explain your answer.

Added by Rose J.

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