1. Digital pedometers are produced and sold in a perfectly competitive market, where demand is given by MWTP(Q) = 18−0.25Q.
(a) Initially, firms can produce pedometers at a total cost: . The market is in long-run equilibrium. What is the prevailing market price for pedometers, and how many pedometers does a typical rm make? How many firms are there overall?
(b) Somebody has written an open-source program that manufacturers of pedometers can use to lower their costs of making pedometers. Specifically, in the short-run, existing firms can now use the new technology to produce at a cost , but new firms cannot enter. What is the short-run supply curve of the existing firms using this new technology? What is the new market price, total quantity, and quantity produced by each rm?
(c) In the long-run, new firms can enter and use the new production technology. What is the new long run equilibrium price, total quantity, number of firms, and output per firm?