It is mandatory to give a step by step explanation of the given question. Assume that demand is linear: P(Q) = A bQ, where Q = qi, and thatall firms have the same cost function: C; = cq; + f. What is the free-entrynumber of firms, assuming Cournot competition?

1. Inverse demand function: P(Q) = A - bQ 2. Individual firm's profit: πi = P(Q)qi - C(qi)…

Answered: Assume that demand is linear: P(Q) = A…

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Tables 1 and 2 below are drawn from the article by Bunn P., Ellis C., (2012), "Examining the behaviour of individual UK consumer prices", The Economic Journal, 122, 558, F35-F55 (the article is available on Moodle). The aim of the research is to investigate the frequency with which UK consumer prices change. In order to carry out their investigation the researchers analyse the behaviour of individual UK prices using the data that are used in the construction of the UK CPI and using a database of supermarket prices collected from scanner data. Answer the following questions. 1) Why is this research of interest for macroeconomists in general and UK policy makers in particular? 2) Provide an analysis of the evidence emerging from tables 1 and 2. 3) Explain at least two reasons that, according to economic theory, might prevent business from changing consumer prices more frequently. Table 1. Frequency of consumer price changes Price measure Monthly Consumer Price Index (CPI) microdata CPI…
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Assume that demand is linear: P(Q) = A bQ, where Q = qi, and that all firms have the same cost function: C; = cq; + f. What is the free-entry number of firms, assuming Cournot competition?