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The daily demand for wholesale Tuna in Hawaii is given by P = $6.24 – 0.00016Q,...

The daily demand for wholesale Tuna in Hawaii is given by P = $6.24 – 0.00016Q, where P is the price per pound and Q is the daily catch, in pounds.

The average daily price over the days in 2017 was $4.28 per pound.  Because there is free entry, we have drawn the inference that the price just covers the average cost.  Let’s further assume that more or few boats could be operated without changing the average cost of harvesting tuna.  Indeed, let’s say that TC = $4.28Q, so that MC=AC=$4.28.

  1. Make a picture of the competitive market outcome, using the demand curve above and the long run supply curve implied by the constant average cost assumption. What are the price and quantity
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Answer #1

In case of perfect competition, the equilibrium implies that P= MC

6.24-0.00016Q = 4.28

1.96= 0.00016Q

Q= 12250

P= 4.28

In the long run, a competitive firm produces at minimum level of long run average cost.

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