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Characterize equilibria

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in the country of less developed, conventional telephones are frequently breaking down or overloaded, and it takes months to get a new line installed. Companies are thinking of adopting new parallel wireless system offered by private company, which for now can poorly and sporadically interconnect with local conventional phones, but can connect to phones in other countries. Now suppose that company decisions about investing in this system depend positively on the number of other firms expected to be users, and that there a total of 2 million firms in less developed.
a. Why might such a positive relationship make sense intuitively?
b. How would you characterize equilibria in this settings?
c now suppose that a certain number of companies, A, will invest in this parallel system no matter how many other firms do in less developed. Why this make sense given the description of the problem above.
d. Now specifically suppose that above and beyond this number A, if x
Companies are expected to invest, then [ X / 10,000 ] additional companies will invest. This relationship holds up until the point at which all companies in less developed invest.
Calculate the largest value that A can take before there is just one equilibrium, OR, equally acceptable, show how you would find an answer by illustrating the problem.

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Solution Summary

Calculate the largest value that A can take before there is just one equilibrium, OR, equally acceptable, show how you would find an answer by illustrating the problem.

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Long Run costs and Output Decisions

See the attached file for complete solution. The text here may not be copied exactly as some of the symbols / tables may not print. Thanks

1. The following problem traces the relationship between firm decisions, market supply, and market equilibrium in a perfectly competitive market.

a. Complete the following table for a single firm in the short run:

0 $300 0
1 100
2 150
3 210
4 290
5 400
6 540
7 720
8 950
9 1240
10 1600

b. Using the information in the table, fill in the following supply schedule for this individual firm under perfect competition, and indicate profit (positive or negative) at each output level. Hint: at each hypothetical price, what is the MR of producing one more unit of output? Combine this with the MC of another unit to figure out the quantity supplied.

Price Quantity Supplied Profit

c. Now suppose there are 100 firms in this industry, all with identical cost schedules. Fill in the market quantity supplied at each in this market:

Price Market Quantity Supplied Market Quantity Demanded
$50 1,000
70 900
100 800
130 700
170 600
220 500
280 400
350 300
d. Fill in the blanks: From the market supply and demand schedules in c., the equilibrium market price for this good is _____ and the equilibrium market quantity is ____. Each firm will produce a quantity of ___and earn a ___(profit/loss) equal to ____.

e. In d., your answers characterize the short run equilibrium in this market. Do they characterize the long-run equilibrium as well? If yes, explain why. If no, explain why not (that is, what would happen in the long run to change the equilibrium and why?)

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