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 wages increase as 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. Market demand is
.
a. Find the long-run equilibrium output for each firm.
b. How does the long-run equilibrium price change as the number of firms increases?
c. Find the long-run equilibrium number of firms and total industry output.
d. Find the long-run equilibrium price.
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