(Solution Library) Consider a market for white color T-shirts, which we think is the best de-scribed by a monopolistically competitive model with homogeneous product
Question:
Consider a market for white color T-shirts, which we think is the best de-scribed by a monopolistically competitive model with homogeneous product (so consumers are indifferent which firm produced a particular white T-shirt). The total inverse market demand is p = 500-5/2Q, where p is the price of one T-shirt and Q is the total quantity demanded. The total cost of production is TC (q) = 10q +10 for each firm in the industry producing q T-shirts.
- Find the long-run market equilibrium, i.e. the market price, industry-level output, the output per firm and the total number of firms in this industry.
- Suppose that due to changing consumers preferences, the white color is getting more popular this season, so that there is a sudden increase in the total market demand to p = 600 — 5/2Q. What will happen in the short run to the market equilibrium?
- What will happen in the long run, when other firms start producing white color T-shirts?
Deliverable: Word Document 
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