Question

pencils are produced in a perfectly competitive industry.The

Answer 1

For each firm,its goal is to maximize the profit.In a market of free entry ,

it requires P=MC.

TC=AC*y=4y+y*(2-y)^2

MC=d(TC)/dy=3*y^2-8*y+8

Solve this second-oder equation 3*y^2-8*y+8-P=0,we get

y=4/3+((3P-8)^0.5)/3 or y=4/3-((3P-8)^0.5)/3(This does not make sense,for higher P results in higher y for supplier)

and P must greater than min(AC)=4

So supply function for each firm is

y=4/3+((3P-8)^0.5)/3,P>=4,

y=0 P=4

y=0,P