Suppose that the market for gourmet deli sandwiches is perfectly competitive and that the supply of workers in this industry is upward-sloping, so that the wages increase as the industry output increases. Delis in this market face the following total cost:
where Q is the number of sandwiches and W is the daily wage paid to workers. The wage, which depends on total industry output, equals
, where N is the number of firms.
a. How does average total cost for the firm change as industry output increases?
b. What does this relationship imply for industry's long-run supply curve?

Question

Suppose that the market for gourmet deli sandwiches is perfectly competitive and that the supply of workers in this industry is upward-sloping, so that the wages increase as the industry output increases. Delis in this market face the following total cost:  
where Q is the number of sandwiches and W is the daily wage paid to workers. The wage, which depends on total industry output, equals  
, where N is the number of firms. 
a. How does average total cost for the firm change as industry output increases?
b. What does this relationship imply for industry's long-run supply curve?

Quizplus · Accepted Answer

The Answer of Suppose that the market for gourmet deli sandwiches is perfectly competitive and that the supply of workers in this industry is upward-sloping, so that the wages increase as the industry output increases. Delis in this market face the following total cost:  
where Q is the number of sandwiches and W is the daily wage paid to workers. The wage, which depends on total industry output, equals  
, where N is the number of firms. 
a. How does average total cost for the firm change as industry output increases?
b. What does this relationship imply for industry's long-run supply curve?

Suppose That the Market for Gourmet Deli Sandwiches Is Perfectly