Perfect competition – consider a perfectly competitive market that has 4 firms in it (assume it is perfectly competitive despite their being only 4 firms). two of the firms use technology a and two of the firms use technology b. the respective costs of producing using technology a and b are given by the cost functions: = 40 + + = 30 + + demand is given by ) = 20 − 1 5 p. a) determine short run equilibria, i. e. optimal outputs for each type of firm, equilibrium quantity for the market as a whole, and the equilibrium price, and then calculate equilibrium profits for each type of firm.

b) given your answers regarding profits of the type a and type b firms, what will you expect to happen in the long run? will other firms enter? will price stay the same? how will this impact the two types of firms differently? will both technologies be used in the long run? explain.