Question

A firm in a purely competitive industry is currently producing 1,200 units per day at a total cost of $450. If the firm produced 1,000 units per day, its total cost would be $300, and if it produced 700 units per day, its total cost would be $275. Instructions: Round your answers to 2 decimal places. a. What are the firm's ATC at these three levels of production? At 1,200 units per day, ATC = $ 0.33 At 1,000 units per day, ATC = At 700 units per day, ATC = b. If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? (Click to select) c. From what you know about these firms' cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium?

Answer 1

(a)

Quantity	Total Cost	ATC
1200	450	0.38
1000	300	0.30
700	275	0.39

ATC = (Total cost / Quantity)

At 1200 units per day, ATC = $0.38

At 1000 units per day, ATC = $0.30

At 700 units per day, ATC = $0.39

----------

(b)

No, industry is not in long run competitive equilibrium.

Because in long run firms operates at the minimum ATC point, which is 0.3 at output level of 1000 units per unit.

But the firm is producing 1200 units in this industry.

Answer: NO

-------

(c)

At long run equilibrium poin, a perfectly competitive firm produces at P=MC=Min. ATC

=.> P = Min. ATC

=> P = $0.3

Long-run equilibrium price is $0.3