Question: Consider a perfectly competitive industry where individual firms have total cost functions given by,

(a) Does an individual firm have (i) economies of scale, (ii) diseconomies of scale, (iii) economies of scale up to some threshold quality q* and decreasing economies of scale thereafter? If (iii) is true, compute q*.

(b) A perfectly competitive industry is characterized by the above cost function for individual firms and by demand function:

D(p) = 10, 000 — 100p

Compute the long-run equilibrium price, quantity, and number of firms in the market.