Question

please answer ASAP

A perfectly competitive industry is composed of 100 identical firms with cost structure: TCVC FC AVC ATC MC a) Complete the preceding Table. b) Assuming that the market price is p-8, what are the quantity produced by each firm and the profit it makes? c) Suppose that the market demand schedule is as follows: P QD 0 700 2 650 4 600 6 550 500 10 450 is the price p = 8 a short-run equilibrium price? d) Assuming that the minimum LRATC is 4, Isp - 3 a long run equilibrium price? If not, which are the long-run equilibrium price and the quantities produced by each firm and by the whole industry in the long run? How many firms will be part of this industry in the long run?

please help

Answer 1

(a)

q	TC	VC	FC	AVC	ATC	MC
0	4	0	4	---	----	----
1	8	4	4	4	8	4
2	10	6	4	3	5	2
3	14	10	4	3.33	4.67	4
4	20	16	4	4	5	6
5	28	24	4	4.8	5.6	8
6	38	34	4	5.67	6.33	10

• TC = FC at q=0 and FC remains same at each q
• FC = 4 at each q
• VC = TC - FC
• AVC = VC/q
• ATC=TC/q
• MC = (change in TC / change in q)

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(b) a perfectly competitive firm produces at P = MC.

P=MC = 8 corresponding to q = 5

Therefore, the quantity produced by each firm is 50 units.

Profit = TR - TC

Profit = pq - TC (TR = Price * Quantity)

Profit = 8 * 5 - 28 (TC at q=5 is 28)

Profit = 40 - 28

Profit = 12

Each firm makes a profit of 12

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(c) An individual's firm will produce q = 5

there are 100 identical firms.

So, the quantity supplied by the market = 100 * 5

quantity supplied by the market = 500

market equilibrium occurs at the point where market supply (Qs) and market demand (Qd) are equal.

Qs = Qd = 500 at P =8

Hence, P = 8 is the short-run equilibrium price.

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(d) In the long run, a perfectly competitive firm produces at P = MC = minimum LRATC

Hence, P = MC = minimum LRATC= 4.

The long-run equilibrium price is 4.

P = MC = 4 corresponding to q = 3.

Hence the quantity produced by each firm in the long run is 3 units.

At P =4, market demand (Qd) is 600

Hence, the quantity produced by the whole industry in the long run is 600

No. of firms = (Market output / each firm output)

No. of firms = 600 / 3

No. of firms = 200

There are 200 firms in the long run.

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(Note: The calculated minimum ATC is 4.67.

But in question, it is given that minimum LRATC is 4.

So I am assuming minimum ATC is 4 instead of 4.67 at q = 3.

So that MC = minimum LRATC = 4 at q =3)