Question

Suppose that a particular firm is in a perfectly competitive constant-cost industry. When it is using the optimal amount of capital for the long-run, total cost is C(q)=1000+(q2/10), ATC(q)=(1000/q)+q/10, and marginal cost is MC(q)=2q/10. This implies that ATC=MC at a quantity of 100 and a per unit cost of $20.

1. At what quantity is average total cost minimized?

2. What is the long-run competitive equilibrium price?

3. If market demand is QD=12,000-200P and short-run market supply is QS=300P, what is the short-run market equilibrium price?

4. What will happen in the long-run

Answer 1

0 ATC is minimum when Me intersects ATC pats MC = ATC corresponding to loo units of outfart Therefore, at lo units of output ATC id minimum. 6 long run competihre equilibrium uccurs at the following pont P = MC = ATC MC= ATC= $20 (Given) => P = $20 Therefore long ron cumpe blive equilibrium price is v shat dan market egubbim, CD zas -> 12000 - 200 p =3 3002 12000 - 300 p + 20 p 12000 = 500p P=(120w/500) IP = 24 6 shost rum cumbentive equilibrium, P=mc. > 24 - 24 -> (24)(0) = 24 - g = 240/2 : 19 = 120 In short an a firm will produce g 120 at a price of $24

ATC= 1000 + 2 ATC = love 120 ATC = 20.33 20 unitd hd 20.33. ATE from Preht = TR-TC u : pq - ATCL C u = 9 (P-ATC) a = $20 (24-20133) Autiom preßt - 440.4 In short run a tim will earn a positive economic profit of $44004 This positive proft will a tracks the new from towards the market. As a result there will be entry of new firms in the long don Market Supply will ride and market supply curve will shifts to the right and egulbrium price will fall to $20 (re., long don egaalbim priu).